Time-optimized capital market financing and capital structure decisions of companies

Jan Vogt

Doctoral thesis

Abstract:

Publicly listed companies transact in capital markets and issue or buy back securities for various reasons. Backed by numerous empirical studies, capital markets are not always entirely informationally efficient, i.e., prices can deviate even for longer periods from fundamental values. Firm management has an informal advantage compared to investors and can – if capable, entitled, and allowed to – generate value for long-term investors by selling securities when overpriced and repurchasing securities when underpriced. This behavior is called (managerial) market timing and explains, according to the existing literature, to a significant extent, the development of firms’ capital structures. This work assesses the benefits of market timing from the perspective of long-term shareholders (as opposed to new or leaving shareholders or debt-holders). The literature and the analyses presented in this thesis demonstrate that there is significant potential for value gains for long-term shareholders. It is further demonstrated that the value gain for long-term shareholders is measured incorrectly so far as the effects of changes in credit risk as a direct result of the respective transaction are neglected. Success in market timing depends on the firm’s proximity to capital markets, experience and flexibility, and the respective transaction type (equity issuance vs. bond issuance vs. equity buyback vs. bond buyback).

Keywords

Market timing, Capital structure, Valuation, Equity issuance, Debt issuance, Equity repurchases, Debt repurchases, Financing choice, Credit risk

Language used: English

Date on which the thesis was submitted / produced: 11. 7. 2024

Thesis defence

• Date of defence: 26. 8. 2024
• Supervisor: doc. Mgr. Ing. Petr Wawrosz, Ph.D.
• Reader: Ing. Jana Kotěšovcová, Ph.D., prof. Ing. Mansoor Maitah, Ph.D. et Ph.D., doc. Ing. Milan Paták, CSc.

University of Finance and Administration

Doctoral programme / field:
Finance / Finance