The Market Timing And Capital Structure Determinant

Behavioral corporate finance is the production that has integrated the theory of corporate finance and behavioral finance. Market timing theory of capital structure is developed and tested in Baker and Wurgler (2002). Their research result document that market timing affects capital structure in the short run, but also the effects on capital structure are very persistent, so they suggest that capital structure is the cumulative outcome of past attempts to time the equity market. It's a new capital structure theory different from the tradeoff theory and the pecking order theory. At present, the oversea research on behavioral corporate finance theory just launched, domestic research on this domain just rest on introducing behavioral corporate finance theory, there is not any scholar analyze our listed company's investment or financial policy make use of the research outcome derived from the behavioral corporate finance theory. First of all, this paper review the research of behavioral corporate finance theory on company's investment and financial policy, summarize the market timing theory of capital structure under the frame of behavioral corporate finance theory, afterwards use the model of Baker and Wurgler (2002), design appropriate variable based on our country's fact to test empirically formation of our listed company's capital structure. The research results document that capital structure is not the cumulative outcome of past attempts to time the equity market. No matter is looked from the short-term or for a long time, capital structure is strongly related to non- debt tax shield and profitability. We suggest that appears this kind of result mainly is because our country stock market is not very mature, securities supervising has limited the company market timing ability greatly. Moreover, the limitation that the time selection interval is too short also can affect this article conclusion in the certain degree.We think that following research may examine whether the market timing theory of capital structure can explain our listed company's capital structure formation in the longer time interval. At the same time it is the following research direction which examine the market timing theory of capital structure to be correct or not under the hypothesis of rational investors but irrational managers or irrational investors and irrational managers.