This paper examines the capital structure implications of market timing. I isolate timing attempts in a single major financing event, the initial public offering, by identifying market timers as firms that go public in hot issue markets. I find that hot-market IPO firms issue substantially more equity, and lower their leverage ratios by more, than cold-market firms do. However, immediately after going public, hot-market firms increase their leverage ratios by issuing more debt and less equity relative to cold-market firms. At the end of the second year following the IPO, the impact of market timing on leverage completely vanishes. Copyright 2006 by The American Finance Association.

Market timing during initial public offering leads to higher equity issues and lower leverage ratios, but this effect vanishes after two years.

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How Persistent is the Impact of Market Timing on Capital Structure?

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