Market Timing and Its Impact on Capital Structure: Evidence from Switzerland

The goal of this study is to analyze the market timing effect on the capital structure of firms listed on SIX Swiss Exchange. It is the first quantitative study of market timing effect on capital structure for Swiss market. The research attempts to answer the following questions. Research question 1: Does market timing exist on Swiss stock exchange? Research question 2: How persistent is the effect of market timing on the capital structure of firms listed on Swiss stock exchange? The findings are expected to be similar to the ones provided by Hogfeldt and Oborenko (2005) and Bruinshoofd and de Haan (2012). Hypothesis 1: Market timing is present on Swiss stock exchange. Hypothesis 2: The effect of market timing on the capital structure of firms listed on Swiss stock exchange is insignificant. This research uses an econometric model developed by Alti (2006). The data has been collected from Thomson Reuters Eikon and official websites of SIX Swiss Exchange. The hot market is defined as months when the number of IPOs is above average. Using this approach, the results suggest that market timing is present on Swiss stock exchange. The effect of the hot market on the amount of IPO proceeds is statistically significant. However, there is no evidence of the persistency of market timing effect on capital structure. Furthermore, even short-term effect is not observed. According to these results, the market timing theory of capital structure by Baker & Wurgler (2002) cannot be extended to firms on Swiss stock exchange.