Transparency and the Pricing of Market Timing
Speaker
Abstract
| We find that firms that timed their external financing more in the past (i.e., that issued more capital when market conditions were good) have a lower expected cost of equity than those that timed their issuance less. These findings are consistent with the hypothesis that the gains from future market-timing activity are priced by current sophisticated long-term investors. In addition, prior research suggests that transparent firms have more flexibility in issuing equity than opaque firms. This suggests that transparent firms are in a better position to take advantage of mispricings than opaque firms. Consistent with this idea, we find that the benefits of a market timing strategy are stronger for firms with transparent accounting or high analyst coverage than for firms with opaque accounting or low analyst coverage. |
| Contact information: |
| Paolo Perego |
