Corporate financing decisions, managerial market timing, and real investment

Alexander W. Butler, Jess Cornaggia, Gustavo Grullon, James P. Weston

Research output: Contribution to journalArticlepeer-review

30 Scopus citations


Both market timing and investment-based theories of corporate financing predict under-performance after firms raise capital, but only market timing predicts that the composition of financing (equity compared with debt) should also forecast returns. In cross-sectional tests, we find that the amount of net financing is more important than its composition in explaining future stock returns. In the time series, investment-based factor models explain abnormal stock performance following a variety of corporate financing events that previous studies link to market timing. At the aggregate level, the amount of new financing is also more important for future market returns than its composition. Overall, our joint tests reveal that measures of real investment are correlated with future returns and measures of managerial market timing are not.

Original languageEnglish (US)
Pages (from-to)666-683
Number of pages18
JournalJournal of Financial Economics
Issue number3
StatePublished - Sep 2011

All Science Journal Classification (ASJC) codes

  • Accounting
  • Finance
  • Economics and Econometrics
  • Strategy and Management


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