Market timing and the debt-equity choice
We test the market timing theory of capital structure using an earnings-based valuation model that allows us to separate equity mispricing from growth options and time-varying adverse selection; thus avoiding the multiple interpretations of book-to-market ratio. We find that equity market mispricing plays a significant, if not dominant, role in the security choice decision. Our results are robust to the inclusion of proxies for time-varying growth options and alternate methods of measuring misvaluation.
Year of publication: |
2008
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Authors: | Elliott, William B. ; Koëter-Kant, Johanna ; Warr, Richard S. |
Published in: |
Journal of Financial Intermediation. - Elsevier, ISSN 1042-9573. - Vol. 17.2008, 2, p. 175-197
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Publisher: |
Elsevier |
Keywords: | Capital structure Market timing Security choice Mispricing Earnings-based valuation Residual income model |
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