An Empirical Research on Market Timing and Persistent Impact on Capital Structure of Listed Companies in China

For the hypothesis that capital market efficiency is oppugned in assets pricing empirical studies, behavior and psychology are introduced in corporate finance. Equity Market Timing refers to the practice of issuing shares when they are overvalued and repurchasing them when undervalued. Based on the theory of equity market timing combined with traditional capital structure theory, this paper discusses the effects of market timing theory on Chinese listed companies' capital structure and financial decisions. The research community is IPO companies, by identifying market timers as firms that go public in hot issue market. In the examination period, findings indicate that: First, in the capital market of our country, the market timing remarkably exists, and the market timing has two meanings for Chinese listed firms. Second, further analysis indicates that market timing has great impacts on the capital structure of Chinese listed companies. At the end of the second year following the IPO, the impact of market timing on leverage completely vanishes, and therefore the conclusion is the impact of market timing on firm's capital structure is temporary and cannot be cumulated.