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Equity market timing and capital structure: evidence on post-IPO firms in Indonesia

Dewi Ratih (Faculty of Economics, Widya Karya Catholic University, Malang, Indonesia)

International Journal of Emerging Markets

ISSN: 1746-8809

Article publication date: 25 September 2019

Issue publication date: 12 February 2021



The purpose of this paper is to analyze and evaluate the impacts of equity market timing on corporate capital structure policies in Indonesia by apply Baker and Wurgler’s analytical approach to firms in Indonesia to see, first, if that approach applies to Indonesian firms and, second, if it can be generalized to other emerging markets.


This study will focus on capital structure policies based on Market Timing Theory in developing countries, which uses the panel data of companies listed in Indonesian Stock Exchange after IPO. The companies used as research object are 70 firms in the non-financial/non-banking sector with the observation period of 2000–2015. The period of measurement is five years after IPO. Using a past market value in which equity market timing is measured in two-time measurements, i.e. yearly timing and long-term timing to prove its persistence.


Consistent with equity market timing theory, the results suggest that firms tend to issue equities when their market valuations are relatively higher than their book values and their past market values are high. As a consequence, the firms become underleveraged or have their debts reduced in the short run. The results of long-term measurement on equity market timing do not appear to affect the firms’ capital structure decisions due to the firms’ relatively quick adjustments of optimal capital structures. The conclusion is that equity market timing is an important element in the short run but not in the long run.

Research limitations/implications

The results of this study describe how firms in Indonesia take advantage of temporary market share fluctuations through equity market timing in their capital structure policies before ultimately making adjustments to the directions they are targeting.

Practical implications

The use of equity market timing is more aimed at reducing the debt ratio and avoiding unfavorable conditions in the debt market, as well as taking advantage of the capital gains derived from the differences in their stock prices. This study also has practical implications on investment policies that need to consider the adaptation factor of the industrial environment when it comes to making capital structure decisions, including how the entity must take policy when uncertain economic conditions.

Social implications

Through the research behavior of capital structure more in-depth decision is expected to provide an overview for investors widely in determining investment policy. Thus, the investment strategy is more planned and can also anticipate unexpected conditions.


This research is the first study to analyze and to evaluate the impacts of equity market timing on corporate capital structure policies on post-IPO firms in Indonesia. This research is an empirical study that investigates the relevance of equity market timing considerations in the determination of debt-equity choices in the capital structure, included in the conditions of the global financial crisis.



The 2008 global financial crisis was included in the research period. This research has benefited from the helpful comments of Mamduh M. Hanafi, Faculty of Economics and Business, Gadjah Mada University, during the revision process.


Ratih, D. (2021), "Equity market timing and capital structure: evidence on post-IPO firms in Indonesia", International Journal of Emerging Markets, Vol. 16 No. 2, pp. 391-407.



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