摘要：In this paper, we show how capital structure decisions made by non-financial firms listed in the Tunis Stock Exchange are affected by the predictions of the so-called market timing theory. Using a set of some relevant variables which reflect the market-timing signals, the firm fundamentals, and the performance of local stock market, we mainly find that leverage ratio of Tunisian firms is short-term driven by their current market valuations. In the long run, the market timing effects are not present at all. Rather, Tunisian firms seem to behave according to the tradeoff theory of capital structure by attempting to adjust their leverage levels towards a target ratio.Citation:Duc Khuong Nguyen and Adel Boubaker, (2009) ''Does financing behavior of Tunisian firms follow the predictions of the market timing theory of capital structure.'', Economics Bulletin, Vol. 29 no.1 pp. 169-181.Submitted:.Sep.01.2008....Published:February 22, 2009..... var currentpos,timer; function initialize() { timer=setInterval("scrollwindow()",10);} function sc(){clearInterval(timer); }function scrollwindow() { currentpos=document.body.scrollTop; window.scroll(0,++currentpos); if (currentpos != document.body.scrollTop) sc();} document.onmousedown=scdocument.ondblclick=initialize1. IntroductionThe choice of capital structure has always been an important issue in corporate governance practices since all firms are concerned regardless their stage of development and size. In finance literature, a significant number of works, both theoretical and empirical, have studied the determinants of capital structure, but the results are in general not conclusive. For the ma-jority of academic researchers, the recent observed evolutions of the listed firms' debt-equity ratios worldwide are still challenging in the theory of corporate finance and difficult to be puzzled out. The main reason of this assessment is that none of the three competitive theories in the field (Static Tradeoff, Pecking Order and Market Timing Models) can solely explain the dynamic changes of capital structure documented in past studies. Thus, the relative im-portance of these models depends on different researches and the generalization of the resultsis not possible for instance. As a starting point of the paper, it is necessary to recall the foundations and explanations of the aforementioned theories with regard to the management of capital structure. In general, the static tradeoff framework is based on the existence of an optimum capital structure and a target debt-to-equity ratio. The said target ratio is the one which maximizes the firm value and which, by default, shows the optimal level of debts to use. Within this situation, man-agement of the firm considers a balance between tax saving advantages and costs, especially increasing bankruptcy risk and agency costs, associated with debt services.The pecking order theory of capital structure, which appeared in the seminal work of Myers and Majluf (1984), neglects the existence of such a target debt-to-equity ratio as in the tradeoff theory and rests instead on the domination of the costs related to the asymmetries of information between managers (who are well informed on the future prospects of their firms), and external investors (who are aware of the asymmetric information). Other costs are, ac-cording to these authors, of less importance. Practically speaking, firms elaborate a hierarchy of financing sources when a supplementary capital is required. The priority is given to self-financing means when available, debt is preferred over equity when an external financing is needed, and finally equity is only issued at the last resort when it is not possible for a firm to contract more debt.Another competitor of the tradeoff theory is the market timing theory which states that managers of a firm look for the good times to make appropriate financing decisions. In effect, they issue new stocks when the related cost of equity is lower than that of alternative types of external financing, thanks to high market valuation of the firm's stocks. When the firm's stocks are underevaluated (i.e., the cost of equity issuance is high), they do give up this op-tion and favor the use of debt instruments. As a result, successful timings of the equity mar-kets contribute to reduce significantly the cost of capital supported by considered firms. Re-searches focusing on market-timing-driven financial decisions are widely motivated by the work of Baker and Wurgler (2002). Indeed, these authors show that temporary changes in past market valuations of the firm lead to management's efforts to time the market and con-sequently to permanent changes in capital structure. The conclusions of several recent papers are, however, inconsistent with empirical evidences of Baker and Wurgler (2002) as we can see later in the literature review section.In this paper, we examine the predictions of market timing theory and their effects on the capital structure choices of Tunisian firms. The study is particularly led by two motivations. First, we attempt to test the market timing theory using a different set of data since the debate on its explanatory power is far from settled. Empirical evidences from an emerging market can lead to further insights into the implications of such theory. Second, Tunisian firms are of particular interest because very few studies are devoted to examine this issue and their beha-vior is influenced by a number of cultural-, legal-, and institutional-specific factors. At the
