TY - JOUR
T1 - Corporate financing decisions, managerial market timing, and real investment
AU - Butler, Alexander W.
AU - Cornaggia, Jess
AU - Grullon, Gustavo
AU - Weston, James P.
N1 - Copyright:
Copyright 2011 Elsevier B.V., All rights reserved.
PY - 2011/9
Y1 - 2011/9
N2 - 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.
AB - 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.
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U2 - 10.1016/j.jfineco.2011.05.001
DO - 10.1016/j.jfineco.2011.05.001
M3 - Article
AN - SCOPUS:79960412978
SN - 0304-405X
VL - 101
SP - 666
EP - 683
JO - Journal of Financial Economics
JF - Journal of Financial Economics
IS - 3
ER -