Does equity market timing have a persistent impact on capital structure? Evidence from China. Issue 1 (January 2020)

• Record Type: Journal Article
• Authors: Zhao, Yang; Lee, Cheng-Few; Yu, Min-Teh
• Is Part Of: British accounting review. Volume 52:Issue 1(2020)
• Publication Date: 2020-01
• Subjects: Cost of equity -- Equity market timing -- Capital structure -- Equity funding supply -- Chinese IPO -- Securities accounts; Accounting -- Periodicals; Accounting -- Great Britain -- Periodicals; Comptabilité -- Périodiques; Comptabilité -- Grande-Bretagne -- Périodiques; 657.05
• DOI: 10.1016/j.bar.2019.100838
• Languages: English
• ISSNs: 0890-8389

Abstract

Abstract: This paper uses the change in individual securities accounts as a measure of equity funding supply to examine whether the persistent timing effect on capital structure exists for the Chinese equity market. This new equity timing measure avoids previous criticisms over a timing measure not being independent of a firm's characteristics of capital structure. Our empirical results show that this new measure is an effective market timing variable for issuing equity in the Chinese equity market, and that a persistent effect of equity market timing on firm capital structure exists for more than 7 years. This paper offers evidence that the market conditions of equity funding supply play an important role in corporate financing decisions in China.