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Market Timing Behavior and Equity Issuance Decisions in Nigeria Exchange Group

Nkeiruka Chinyere Forcha-Chigbo, PhD Obonofiemro Godwin

Abstract

This study examined the relationship between market timing behavior and equity issuance decisions in Nigerian firms listed on the Nigeria Exchange Group from 2000 to 2024. Using a quantitative research design, the study aimed to determine how market conditions, such as abnormal stock returns , equity market volatility , credit spreads , and interest rate levels , influenced firms’ decisions to issue equity. The study utilized secondary data obtained from NGX Group Annual Reports and Central Bank of Nigeria Reports, and the data were analyzed using Ordinary Least Squares regression with E-Views 9.0. The findings revealed that all independent variables (ABSR, EMV, CSP, IRL) had a statistically significant impact on equity issuance, measured by equity issue size scaled by total assets (EIS_TA). A positive and significant relationship was found between ABSR and EIS_TA, supporting Market Timing Theory, as firms were more likely to issue equity when stock prices were high. In contrast, a negative significant relationship between EMV and EIS_TA aligned with Pecking Order Theory, indicating that firms preferred debt issuance over equity during periods of high market volatility. The positive relationship between CSP and EIS_TA reinforced the idea that firms take advantage of favorable credit conditions to issue equity, consistent with Market Timing Theory. The negative relationship between IRL and EIS_TA suggested that higher interest rates deterred equity issuance, as firms opted for cheaper debt financing, aligning with both Pecking Order and Market Timing Theories. This study contributes to the understanding of corporate financing strategies in Nigeria, offering valuable insights into how market conditions influence equity issuance decisions. The findings recommend that Nigerian firms closely monitor market conditions, including stock returns, market volatility, credit spreads, and interest rates, to optimize their capital structure decisions.

Keywords

Abnormal Stock ReturnsEquity Market VolatilityCredit SpreadsInterest Rate Levels and Equity Issue Size Scaled by Total Assets

References

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