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Beyond market timing theory

Subramanian Iyer (Department of Finance, International, Technology and Entrepreneurship, University of New Mexico, Albuquerque, New Mexico, USA)
Siamak Javadi (Department of Economics and Finance, University of Texas Rio Grande Valley, Brownsville, Texas, USA)

Studies in Economics and Finance

ISSN: 1086-7376

Article publication date: 17 October 2018

Issue publication date: 24 October 2018

402

Abstract

Purpose

This study aims to examine the behavior of cash raised through market timing efforts and the success of such efforts in creating value to shareholders.

Design/methodology/approach

It is shown that in two quarters, subsequent to raising equity, cash balance of market timers is higher but after that, there is no significant difference between timers and non-timers. Results of speed of adjustment regressions indicate that market timers move faster toward their target cash levels.

Findings

Market timers are small firms that suffer from asymmetric information. They have limited access to capital market, and raising external capital is an opportunity that should be timed. The results suggest that, on average, these firms are managed by more able executives, who are 10 per cent more likely to time the market; however, it is found that timing efforts are unsuccessful in creating value to shareholders even after controlling for the mitigating effect of managerial ability. Subsequent to market timing, on average, market timers earn significantly lower abnormal return over different holding periods relative to their comparable non-timer counterparts.

Originality/value

Overall, the results undermine the validity of market timing as a value-maximizing financial policy.

Keywords

Citation

Iyer, S. and Javadi, S. (2018), "Beyond market timing theory", Studies in Economics and Finance, Vol. 35 No. 4, pp. 458-480. https://doi.org/10.1108/SEF-09-2017-0245

Publisher

:

Emerald Publishing Limited

Copyright © 2018, Emerald Publishing Limited

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