Title: Market timing and capital structure: a comparative study between the USA and China

Authors: Dereje F. Asrat; Lukas B. Timbate

Addresses: School of Accounting and Finance, Hong Kong Polytechnic University, Kowloon, Hong Kong ' School of Global Studies, Kyungsung University, Busan, South Korea

Abstract: The present study is a replication and expansion of the well-known paper by Baker and Wurgler (2002), which examined the effect of equity market timing on firm capital structure in the US stock market between 1968 and 1999. This paper begins by replicating Baker and Wurgler, extending the sample period to the last 30 years (1990-2019), and comparing the results with data from China for the same time-period. This study concludes that Baker and Wurgler's findings are still valid for the most recent sample period in the USA and that the results for the Chinese markets are comparable, despite the numerous differences between the two markets. Specifically, firms' historical equity market timing activities have substantial and lasting effects on the capital structure of the US and Chinese markets. Consistent results across the world's two largest economies, despite their institutional differences, will strengthen our faith in Baker and Wurgler's market timing theory of capital structure.

Keywords: market timing; capital structure; USA; China.

DOI: 10.1504/AAJFA.2025.144766

Afro-Asian Journal of Finance and Accounting, 2025 Vol.15 No.2, pp.243 - 264

Received: 03 Aug 2022
Received in revised form: 22 Mar 2023
Accepted: 01 May 2023
Published online: 03 Mar 2025 *

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