MARKET TIMING THEORY AND FIRMS’ FINANCING DECISIONS IN PAKISTAN: EVIDENCE FROM NON-FINANCIAL FIRMS

Abstract

This study fills a gap in capital structure literature by identifying conditions and mechanisms of equity markets that make Pakistani firms financing decisions more relevant and predictable. This study used the data of 104 non-financial firms listed at Karachi Stock Exchange for the period of 1999 to 2011 to identify that either firms in Pakistan time the equity markets or this phenomena is flat. The core principle of market timing theory that firms go for issuance of securities when their prices are high in the market has been observed in this study. The study found the evidence that in short run firms consider the market valuations if going to issue equity however the results lost the economic significance when test of persistence were applied. In short, our results developed the concept that firm in Pakistan may consider the market timing effect to change their capital structure decisions.

Keywords

• Market timing theory,capital structure,nonfinancial firms,KSE,leverage

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