This paper shows that portfolio constraints have important implications for management compensation and performance evaluation. Concretely, in the presence of portfolio constraints, allowing for benchmarking can be beneficial. Benchmark design arises as an alternative effort inducement mechanism...

The Market Timing theory of capital structure states that firms that go to the financial markets at the right time can permanently lower their debt ratios. For equity markets, Baker and Wurgler (2002) show that low leverage firms are those that had raised funds when their market valuations (i.e....

The Market Timing theory of capital structure states that firms that go to the financial markets at the right time can permanently lower their debt ratios. For equity markets, Baker and Wurgler (2002) show that low leverage firms are those that had raised funds when their market valuations (i.e....

We address the empirical implementation of the static asset allocation problem by developing a forward-looking approach that uses information from market option prices. To this end, we extract constant maturity S&P 500 implied distributions and transform them to the corresponding risk-adjusted...

Valuation-based market timing demonstrates greater potential to improve risk-adjusted returns for conservative long-term investors than given credit by Fisher and Statman (2006). On a risk-adjusted basis, market-timing strategies provide comparable returns as a 100 percent stocks buy-and-hold...

In this paper the authors survey financial structure theories, from the start-up point, which is considered Modigliani and Miller’s capital structure irrelevance theorem, to recent theories, such as the pecking order and the market timing theory. For each type of model, a brief overview of the...

Purpose – The purpose of this paper is to gain a better understanding of the market timing skills displayed by hedge fund managers during the 2007-08 financial crisis. Design/methodology/approach – The performance of a market timer can be measured through the 1966 Treynor and Mazuy model,...

This paper examines the impact of profitability, stock price performance and growth opportunity on the capital structure of firms in Singapore, Taiwan and Hong Kong. In contrast to Kayhan and Titman (2007), it is found that firms in these three Chinese-dominated economies strongly prefer debt to...

Overwhelming evidence indicates that firms time market conditions to issue equity. I investigate the motivations for security issuances in hot and cold markets. While it is commonly believed that firms tend to exploit overvaluations to issue equity and overinvest in so-called 'hot' markets,...

This paper investigates the dynamics of capital structure of Japanese firms since the early 1990s to shed light on how far the reduction of excess leverage has progressed so far in Japan. Our main findings are as follows. First, the trade-off theory provides an appropriate framework to assess...