StudentShare solutions
Triangle menu

Introduction of market timing theory (capital structure) - Essay Example


Extract of sample
Introduction of market timing theory (capital structure)

Generally, it has been argued that managers often time the equity market to ensure maximum benefits (Guney and Hussain 1-2). According to Baker and Wugler (1-2) market timing is one of the major determinants used in examining an organisation’s capital structure, and how it uses its equity and debt. This means that companies do not give too much importance to whether they finance with equity or debt, but rather choose the most valued form of financing depending on the time and preference. However, critics allege that there is a need to have an inclusive market timing theory, which will help in clearly explaining why some organisations issue equity whereas others issue debt. In that case, they allege that the market time theory is incomplete. A good example of an organisation that has benefited from market timing is the Apple Company. For instance, research shows that in 2008, the company registered significant amounts of strengths despite the recession. The organisation was successful because its management did a tremendous job of ensuring that its stocks hold up during the difficult times; therefore, it was able to make enough money while other organisations were struggling. In 2007, Apple was named as the Business Week most successful and innovative firm. Despite the economic challenges, the company started unveiling its products such as the iPod and Itunes. The management was successful because it focused on producing simple products and ensuring they market their elegant and aesthetic

Check these samples - they also fit your topic

Impact Of Financial Crisis On The Capital Structure Decision Making Of The Firm
Capital structure theories have developed framework for defining aspects and patterns of capital structure as well as response to changing dynamics and hence, owing to the financial crisis and distressed period the capital structure of the firm have also shown responses.
12 pages (3000 words) Essay
Theory of Extreme Capital Structure
These sources are issuance of shares, debentures, long-term loans, plough-backs and short-term loans. Regardless of the source, the capital collected is invested in assets that differ in value and character. Even though capital needs to be viewed as whole, the concepts of “fund” and “assets” cannot be dismissed as they affect the valuation of the whole.
6 pages (1500 words) Essay
Discuss to what extent the existence of corporate and personal taxes could affect companies' dividend policy and capital structure decisions
One of the best ways to enhance shareholders' value is to build a consistent dividend policy over the years that could create value addition to the Company and ensure shareholder loyalties by consolidating and building up its position in the turbulent high waters of competitive business operations
12 pages (3000 words) Essay
Should investors in equity markets be worried about the timing of their investment
Finance is the life blood of every business that requires for carrying out the organizational operations from the beginning to the end. Financial management is a concept, which deals with the efficient and effective usage of economic resources, such as capital finds in a most appropriate manner.
8 pages (2000 words) Essay
Capital Structure Evaluation of Sample Firms
Finally, the report attempts to understand how far the different models and theories affect the real life capital structure of these firms. A firm needs to deliver increasing returns every year to meet the return expectations of its investors, which can be ensured only by consistent growth in its revenue and profit.
8 pages (2000 words) Essay
Capital Structure
They also recommended that an ideal capital structure of a firm is with all debt with cheaper debt finance than higher cost & riskier equity but an optimal capital structure exists in which the terms of debt financing & such other real world problems of debt financing (like bankruptcy due to high debt) and tax savings of the debt financing are balancing factors (Modigliani and Miller.
6 pages (1500 words) Essay
Capital Structure and Dividend Policy Theory
Weighted average cost of capital is a measure used to calculate the amount of debt that a firm holds against the amount of equity. However it’s much better to put it this way it’s a measure of the amount of debt that a firm should hold against the amount of equity.
12 pages (3000 words) Essay
Discuss the theory of Optimal Capital Structure
The equity investors become part-owners and partners in the business and tend to exercise some control over how the business is run. The capital structure is signified by
8 pages (2000 words) Essay
The Effect of Capital Structure on Share Prices based on the FTSE 100
dex implies that firms with greater market capitalization will have a broader impact on the movement of the index, which might also influence the stock movements of other listed companies. Also, it is generally believed that investors prefer companies with larger market values
36 pages (9000 words) Essay
Capital Structure
Respectively, I conjure that varied capital sources are typically based on different costs and thus, needed appropriate analysis for designing an optimal capital structure for raising required finance appropriately (Grundy, n.d.). In businesses, sources of
2 pages (500 words) Essay
designs widely; therefore, ensuring consumer satisfaction and a competitive advantage. It is alleged that the company excelled because of its prowess in technology as well as marketing and ensuring excellent timing. Consequently, it was able to surpass most consumer electronics firms such as Dell (Hitt, Ireland, and Hoskisson 11-12). Various scholars have given limelight to the market timing theory in relation to when organisations are likely to offer equity. For instance, the theory postulates that organisations are highly likely to issue equity in case the stock prices are overrated and at the same time, repurchase equity in scenarios whereby there is a perception that the stock prices have been undervalued. Therefore, the theory alleges that organisations often prefer equity to debt when the market value is high. According to Graham and Harvey (187-188), the amount by which a stock is overvalued or undervalued is an imperative determinant in issuing equity as most people agree that if the stock prices rise, the rate of selling equally goes up. Similarly, Huang and Ritter (3-4), agree that the market timing theory contends that organisations prefer external equity in scenarios whereby the equity costs are low, and prefer debt when the cost of equity is high. It is argued that such kind of mispricing often occurs in cases where the investors are overly positive about the returns of a firm. In contrast, the undervaluation of the stock prices often occurs in circumstances whereby the investors possess negative believes regarding the future of an organisation. Baker and Wugler allege that companies often try to detect mispricing to be more capable of determining the market; hence, the issuance of equity. Additionally, it is assumed that companies end up issuing equity in case the investors are enthusiastic about gaining opportunities in the economy (Baker and


Name Instructor Task Date Interpretation of Market Timing Theory The market timing theory analyses ways in which organisations make the decision to invest using debt or equity instruments. The theory was proposed by Baker and Wugler and is imperative in creating an understanding of the capital structure in the economy…
Author : sophia78
Introduction of market timing theory (capital structure) essay example
Read Text Preview
Comments (0)
Click to create a comment
Let us find you another Essay on topic Introduction of market timing theory (capital structure) for FREE!
Contact us:
Contact Us Now
  • About StudentShare

  • Testimonials

  • FAQ

  • Blog

  • Free Essays
  • New Essays
  • Essays

  • The Newest Essay Topics
Join us:
Contact Us