What Drives Security Issuance Decisions: Market Timing, Pecking Order, or Both?
- 30 July 2012
- journal article
- research article
- Published by Wiley in Financial Management
- Vol. 41 (3) , 637-663
- https://doi.org/10.1111/j.1755-053x.2012.01213.x
Abstract
We study market timing and pecking order in a sample of debt and equity issues and share repurchases of Canadian firms from 1998 to 2007. We find that only when firms are not financially constrained is there evidence that firms issue (repurchase) equity when their shares are overvalued (undervalued) and evidence that overvalued issuers earn lower postannouncement long‐run returns. Similarly, we find that only when firms are not overvalued do they prefer debt to equity financing. These findings highlight an interaction between market timing and pecking order effects.Keywords
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