Conglomerate Structure and Capital Market Timing

摘要

We examine the effects of conglomerate structure on capital market timing. We find that past market conditions affect more the capital structure of Japanese firms that belong to a keiretsu than the structure of unaffiliated Japanese firms. Moreover, the decision to issue equity is more correlated with market conditions for keiretsu members than for unaffiliated firms and stock returns of keiretsu firms following the issuance of equity are decreasing with the size of the issuances. These different results suggest that keiretsu members time the issuance of equity more than stand-alone firms do. Additional results indicate that firms that time the equity market have less bank loans and this effect is stronger for keiretsu firms than for unaffiliated firms. Finally, we find that financial investments of closely-affiliated keiretsu firms decrease when the marketto- book ratio of firms loosely-affiliated with the keiretsu is high but increases when the ratio is high for closely affiliated firms. These additional results suggest that this greater market timing enables keiretsu groups to reallocate funds within the conglomerate, perhaps at the expense of minority investors, but the phenomenon is not explained by the classic tunneling story.