Market Timing and Capital Structures - Evidence from the Nordic Market

Sammanfattning: This paper investigates the applicability of the equity Market Timing Theory of capital structures on large firms in the Nordic market. Tested by using a panel data regression on firms listed on the OMX large cap in Sweden, Denmark and Finland. Contrarian to what the theory claims, no relationship is found between net equity issuance and market-to-book values. Capital structures that are present here are hence not a cumulative outcome of previous attempts to time the equity market. The capital structures are better explained by applying the pecking order and tradeoff theory when interpreting the specifics of the region. The history, ownership structures, size and maturity of the firms in the sample together with aspects of investor relations are likely explanations to the fact that Market Timing is out powered in impact and importance. The implications of these findings concerns investors, owners and top management at the Nordic market since the clear results reduces the information asymmetry, foremost in the decreased signaling effect issuance of equity possesses.