A Study On The Influence Of Market Timing On The Capital Structure Of Dual Listed Companies In China

The market timing theory is based on an ineffective market and irrationalinvestors, aiming to study the influence on capital structure which caused by externalmarket conditions. Modern capital structure theory which based on effective markethypothesis has been questioned since the raising of market timing theory. Manyscholars begin to research capital structure of the enterprise from the new perspective,and make many achievements. The study of market timing theory in China just beganfor a short time, and the objects of most research only include initial public offeringscompanies and seasoned equity offerings companies in A share equity market. Therewere no scholars using market timing theory to analyze financing choice and capitalstructure formation of dual listed companies yet. Based on this, this article selects theChinese dual listed companies as the sample, to discuss whether market timing wouldhave a long-lasting effect on capital structure, so as to verify applicability of markettiming theory for Chinese capital market.In theoretical analysis parts, this paper makes a comparison and analysis ontheory research and empirical conclusions from domestic and overseas. The analysisresults show that, studies of domestic and foreign scholars concentrate on there parts:existence of market timing behavior, selection on marketing timing index, dynamicadjustment of capital structure. Scholars make a consensus on market timingexistence, but have controversy on market timing index choice and "lasted effect oncapital structure". Secondly, this paper makes a review on capital structure theory thatrelated with the text and an introduction on behavioral finance theory results. basedon this, the paper elaborates formation mechanism of market timing theory that basedon irrational model, which means that investors’ irrational expectation will cause falseestimates on company stock price, therefore, there will exist windows of financingopportunities, rational managers can realize this kind of opportunities and adjust theirown financing decision, issuing equity when stock price are overestimated andrepurchasing equity when underestimated, this will make an impaction on capitalstructure. In empirical research parts, this paper confirms the existence of market timingbehavior of dual listed companies in China through comparison between the numberof dual listed company and financing scale when initial return rate are different. Then,on the reference of Baker and Wurgler (2002) model, this paper make M/B and(M/B)efwa t-1as the index of market timing, changes of asset-liability ratio as thedependent variable, combining with company size, profitability and tangible assetsrate, to establish the multiple regression model, researching the market timingimpaction on financing behavior and capital structure. Results show that, when Hshares decided to return to the mainland to issue A-share, there existed market timingbehavior, causing a significant impact on capital structure in IPO year, but there is nosignificant impaction on capital structure from long-term perspective, market timingand capital structure has no relationship, capital structure is not the result of pastmarket timing in the capital markets. The experienced company data of Chinese duallisted company do not support the market timing theory.