Capital Budgeting versus Market Timing: An Evaluation Using Demographics

Stefano Dellavigna, Joshua M. Pollet

Research output: Contribution to journalArticle

Abstract

Using demand shifts induced by demographics, we evaluate capital budgeting and market timing. Capital budgeting implies that industries anticipating positive demand shifts in the near future should issue more equity to finance greater capacity. To the extent that demand shifts in the distant future are not incorporated into equity prices, market timing implies that industries anticipating positive shifts in the distant future should issue less equity due to undervaluation. The evidence supports both theories: new listings and equity issuance respond positively to demand shifts during the next 5 years and negatively to demand shifts further in the future.

Original languageEnglish (US)
Pages (from-to)237-270
Number of pages34
JournalJournal of Finance
Volume68
Issue number1
DOIs
StatePublished - Feb 1 2013

ASJC Scopus subject areas

  • Accounting
  • Finance
  • Economics and Econometrics

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