What is Market Timing?

With the rise of China s capital market and the market-oriented development of company s external financing behavior, fundamental changes have taken place in the financing behavior and capital structure of Chinese companies. The phenomenon of crazy money in the stock market is widespread among listed companies, leading to equity Issues such as financing preferences and capital structure alienation.

Market timing theory

With the rise of China's capital market and companies

These phenomena cannot be reasonably explained by traditional capital structure theory. Scholars agree that China's capital market is still in the initial stage of development and belongs to an emerging market. Stock prices fluctuate sharply. The government's administrative orientation and the irrational behavior of investors

The earliest focus on market timing in the field of western finance can be traced back to Taggart (1977). In his article "Financing Decision Model", he pointed out that "the market value of long-term claims and equity is a company

The current research on the impact of market timing on corporate financing activities is mainly based on empirical evidence. Scholars use different market timing agents

About market timing and companies

The current status of research abroad shows that market timing capital structure theoretical research has achieved certain results and has become the focus of general attention in the theoretical community, opening a promising path for capital structure research. However, the research on this theory is still in its infancy, and the research ideas are relatively scattered, without forming a unified research framework. At present, relevant researches abroad are mainly based on empirical research, and research methods and conclusions are quite different. Therefore, with the continuous deepening and improvement of market timing capital structure theory research, future research should pay attention to at least the following aspects.

First, a unified research framework should be constructed. The study of capital structure should clarify the influencing factors of the capital structure, the mechanism of each influencing factor, and the relationship between the capital structure and the value of the company. The existing literature is relatively fragmented, focusing on managers' predictions of market timing and the impact of market timing on the capital structure, and rarely studies how to determine favorable market timing, the path of market timing's impact on the capital structure, and its value to the company Relationship. Therefore, by constructing a unified research framework and grasping the research object, content and method of the theory as a whole, it is of great significance to improve the theory of market timing capital structure.

Second, strengthen the study of mathematical models. The improvement of any theory is ultimately marked by the accurate representation of mathematical models. Existing market timing capital structure research is mainly empirical research, and different conclusions are drawn due to different indicators and data selected. It has caused fierce debate among scholars and it is difficult to reach consensus, which has hindered the development of this theory. Therefore, it is necessary to accurately describe the internal mechanism of the theory by constructing a mathematical model, so as to promote the development and improvement of the market timing capital structure theory.

Finally, choosing the right market timing indicator is a focus of future research. The existing literature mainly uses indicators such as external weighted average market value book value ratio (EFWAMB), average return on the first day of issuance, and hot market to capture market timing information. However, scholars have a lot of controversy over the selection of these indicators, especially the external weighted average market value book value ratio (EFWAMB) does not only contain mispricing information in the securities market, but also more likely to include information on future growth opportunities, leading A completely different theoretical explanation. Different capital market conditions have different requirements for the selection of indicators, and a single indicator cannot adapt to different market environments. Therefore, in the future research of the market timing capital structure theory, a suitable market timing indicator must be selected to test the generality of the research conclusions.

At present, market timing capital structure research is mainly conducted on mature capital markets such as the United States, while relatively few studies are conducted on other capital markets. China's capital market is still in the development stage, and the behavioral norms of market participants are being improved, which will inevitably leave a relatively large operating space for short-term speculation by investors in the securities market and managers of listed companies. Under the special capital market environment where investors and managers coexist irrationally in China, the price of securities fluctuates violently. The company uses the opportunity of short-term price fluctuations to select financing instruments and capital structures, which will inevitably cause further fluctuations in securities prices and increase government supervision Difficulty. In China's capital market, on the one hand, irrational behaviors that are common among market participants will lead to market opportunities; on the other hand, compared with foreign mature capital markets, China's capital market is formed due to incomplete institutions. "Policy market" has made government supervision a major reason for market timing. Therefore, according to the causes and mechanisms of the timing effect of China's stock market, to effectively identify the timing factors of China's capital market, and to strengthen the study of market timing capital structure theory in China has important theories and practices for improving the theory itself and regulating the development of China's capital market significance. On the one hand, we should use various methods such as cases, theoretical models, and empirical tests to study the investment and financing behavior of listed companies in China, and test the applicability of market timing capital structure theory. On the other hand, we should reveal the decisions of investors and managers Behavior, to provide a basis for effective government supervision, thereby improving China's capital market.