The Financing Decisions and Managerial Market Timing Evidence from Tehran Stock Exchange

Managerial financing decisions seem to change the predictions of the financial model about how often and under what circumstances firms use financial resources. The financial accounting literature uses market timing hypothesis, pecking order theories to explain management’s financing decision. We examine how market timing affects management’s net financing decision using a sample of firms listed in Tehran Stock exchange over the period of 2002 to 2011. Our results do not provide support for the market timing hypothesis. We also find a negative association between net financing and firms’ market return suggesting a negative impact of the net financing decision on firms’ return. Our results show no association between initial public offering and firms’ market return. This suggests that a suitable market return did not appear in initial public offerings. The findings also show that firms with an ability of using internal resources in its capital structure are more likely to perform well than expected in the capital market.