EQUITY MARKET TIMING AND SUBSEQUENT DELISTING LIKELIHOOD

Timing the market for equity is an accepted practice by managers who in theory have the best interests of current shareholders in mind. It is clear that by using their superior information, managers can indeed successfully issue overvalued equity to the new shareholders. Recent research has determined that some firms do well after a market timed issue, while others underperform. The post-issue performance is linked to the investment opportunity set of the issuing firms as well as their choice of investments. In general, firms without good investment options will perform poorly. We extend this line of research by studying the post-issue delisting pattern of market timing firms and the two subsets. Specifically, we research whether firms that mistakenly time the market for equity are more likely to compromise their future and get delisted (through acquisitions, bankruptcies etc.) in the immediate future than those firms that have a use for the funds. Using logistic regression models, we show that firms that are market timing firms and that lack good investment opportunities are indeed more likely to get delisted; strengthening the growing argument that equity market timing does not always result in shareholder benefit.