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Effects of Market Timing on the Capital Structure of Brazilian Firms

Emerging Market Firms in the Global Economy

ISBN: 978-1-78441-066-7, eISBN: 978-1-78441-065-0

Publication date: 11 November 2014



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 paper 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.


We analyze the influence of past market values on the capital structure of these firms, based on the main models proposed by Baker and Wurgler (2002), adapted to reflect the characteristics of Brazilian firms’ financial statements.


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.


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.



Albanez, T. and de Lima, G.A.S.F. (2014), "Effects of Market Timing on the Capital Structure of Brazilian Firms", Emerging Market Firms in the Global Economy (International Finance Review, Vol. 15), Emerald Group Publishing Limited, Bingley, pp. 307-351.



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