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How Persistent Is the Impact of Market Timing on Capital Structure?



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    • University of Texas at Austin. I would like to thank Andres Almazan, Rick Green, Charlie Hadlock, Burton Hollifield, Jay Ritter, Ronnie Shah, Sheridan Titman, Jeffrey Wurgler, an anonymous referee, and the seminar participants at the 2004 Texas Finance Festival, 2005 AFA meetings, and University of Virginia for their helpful comments and suggestions.


This paper examines the capital structure implications of market timing. I isolate timing attempts in a single major financing event, the initial public offering, by identifying market timers as firms that go public in hot issue markets. I find that hot-market IPO firms issue substantially more equity, and lower their leverage ratios by more, than cold-market firms do. However, immediately after going public, hot-market firms increase their leverage ratios by issuing more debt and less equity relative to cold-market firms. At the end of the second year following the IPO, the impact of market timing on leverage completely vanishes.

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