This paper challenges the view that equity market timing always benefits shareholders. By distinguishing the effect of a firm's equity decisions from the effect of mispricing itself, it demonstrates that market timing can decrease shareholder value. Additionally, the timing of equity sales has a more negative effect on existing shareholders than the timing of share repurchases. The theory of the authors can be used to infer the maximisation objectives of firms from their observed market timing strategies. They argue that the popularity of stock buybacks and the low frequency of seasoned equity offerings (SEOs) is consistent with managers maximising their current shareholder value.
|Download 2||411.16 KB|