Effects of market timing on the capital structure of brazilian firms

Título: Effects of market timing on the capital structure of brazilian firms


Resumo: According to the market timing theory, firms try to take advantage of windows of opportunity to raise capital by exploiting temporary cost fluctuations of alternative financing sources. In this context, the main objective of this article is to examine the influence and persistence of market timing in the financing decisions of Brazilian firms that launched IPOs in the period from 2001 to 2011.
Methodology/approach: We analyze the influence of past market values on the capital structure of these firms, based on the main models proposed by Baker & Wurgler (2002), adapted to reflect the characteristics of Brazilian firms’ financial statements.
Findings: We find evidence of market timing, but this behavior is not sufficiently persistent in the period studied to the point of determining these firms’ capital structure. We believe the fact that Brazilian companies rarely carried out follow-on primary equity issues after floating their capital in the period analyzed, due to the presence of more advantageous financing sources (particularly from the national development bank, BNDES), explains the results. Therefore, Brazilian firms appear to be pay heed to different funding sources, in search of windows of opportunity, to guide their financing decisions and determine their capital structures.
Originality/value of paper: The Brazilian capital market has been developing intensely in recent years, making it increasingly relevant to analyze the financing and investment decisions of the country’s listed companies. The Brazilian literature on capital structure is extensive, but few works have addressed the issue of market timing.

Data de publicação: 2014

Periódico/Editora: International Finance Review /Emerald

Edição: Volume 15, pp. 307-351

Palavras-chave: Capital structure, market timing, windows of opportunity, institutional factors, BNDES.