jai | Journal of Accounting and Investment Article Type: Research Paper Equity Market Timing Approach in IPO and Rights Issue of Companies in Indonesia Wihandaru Sotya Pamungkas 1,3 *, Tulus Haryono 2 , Djuminah 2 , Bandi 2 , Doddy Setiawan 2 Abstract: The aim of this study is to analyse the effect of equity market timing on the issuance of new shares and capital structures in companies, excluding those in the financial sector, that conducted Initial Public Offerings (IPOs) and rights issues (RIs) in Indonesia from 1990 to 2014. The study took a sample of companies with less than 100% leverage that had experienced delisting and relisting. The results were obtained at the time of an IPO (i.e. the time of a new shares issuance through go public), RI (the time of a new shares issuance as a rights issue), and RI+1 (one year after the rights issue) and capital structure. There was an effect of equity market timing on the issuance of new shares at IPO+1 (1 year after the IPO), IPO+2, RI+2, RI+3 and RI+4, but the companies issued a small number of new shares and raised the funds they lacked by issuing new debt to obtain an optimal capital structure. These results add to the findings that the market timing theory and trade-off theory are not mutually exclusive. Keywords: IPO; Rights Issue; Equity Market Timing. Introduction Equity market timing is closely related to the cost of capital equity. This relationship must be considered in corporate funding policies (Loughran & Ritter, 1995; Jegadeesh, 2000; Baker & Wurgler, 2002). Based on the results of research summarised by Baker and Wurgler (2002), there are three results. First, in favourable market conditions (overvalued), companies tend to issue new shares as opposed to new debt, while in unfavourable market conditions (undervalued), companies tend to repurchase shares. Second, companies issue new shares when investors place more emphasis on a consideration of their earnings prospects and the management’s assessment of market conditions, with the latter being either overvalued or undervalued. Third, most managers issue new shares in favourable market conditions (overvalued). Favourable market conditions occur when the market value of equity is relatively greater than the book value, meaning the cost of equity capital is lower. Favourable market conditions can arise for a number of reasons. First, capital markets are inefficient, which affects the movement of stock prices, thereby making them difficult to predict; this in turn leads to stock AFFILIATION: 1 Doctoral Student of Universitas Sebelas Maret, Surakarta, Indonesia 2 Universitas Sebelas Maret, Surakarta, Indonesia 3 Universitas Muhammadiyah Yogyakarta, Yogyakarta, Indonesia *CORRESPONDENCE: wihandaru@umy.ac.id THIS ARTICLE IS AVALILABLE IN: http://journal.umy.ac.id/index.php/ai DOI: 10.18196/jai.2003131 CITATION: Pamungkas, W.S., Haryono, T., Djumiah, Bandi, & Setiawan, D. (2019). Equity Market Timing Approach in IPO and Rights Issue of Companies in Indonesia. Journal of Accounting and Investment, 20(3), 310-324. ARTICLE HISTORY Received: 18 June 2019 Reviewed: 4 August 2019 Revised: 17 August 2019 Accepted: 29 August 2019 mailto:wihandaru@umy.ac.id http://journal.umy.ac.id/index.php/ http://journal.umy.ac.id/index.php/ai/article/view/6454 http://journal.umy.ac.id/index.php/ai Pamungkas, Haryono, Djuminah, Bandi, & Setiawan Equity Market Timing Approach in IPO and Rights Issue of Companies in Indonesia Journal of Accounting and Investment, 2019 | 311 prices being either overvalued or undervalued (Asri, 2013). Second, issuers and investors act rationally; however, investors may make erroneous share purchases (adverse selection) (Baker & Wurgler, 2002). Third, issuers act rationally while investors act irrationally, causing mispricing; that is, stocks are overvalued or undervalued in relation to their fair value. This study was motivated by inconsistency in the results of previous studies conducted both in Indonesia and other countries. Research conducted in Indonesia by Miswanto (2015) and Susilawati (2012) produced the finding that equity market timing had a posi- tive effect on new stock issuances and negatively affected capital structure. Felicia and Saragih (2015) found that equity market timing had a positive effect on new stock issuances but no effect on capital structure. Sawitri and Suhari (2009) and Setyawan (2011), meanwhile, found that equity market timing had no effect on capital structure. Baker and Wurgler’s (2002) research conducted in a foreign country yielded the finding that in the United States, equity market timing has a positive effect on the issuance of new shares and a negative effect on capital structure. Mahajan and Tartaroglu (2008) showed that in G7 countries, with the exception of Japan, equity market timing has a positive effect on the issuance of new shares. Bougatef and Chichti (2010) produced findings that equity market timing has a positive effect on the issuing of new shares in France and Tunisia. Celik and Akarim (2013) found that in Turkey, equity market timing does not affect the issuance of new shares and capital structure. This study took a sample of companies that conducted Initial Public Offerings (IPOs) and Rights Issues (RIs). Companies were selected for inclusion in the sample if, despite having conducted both IPOs and RIs, investors were unaware as to the actual condition of the company even though it had issued a prospectus. This can lead to adverse selection and mispricing. In companies that conduct RIs, old shareholders are already aware of the state of the company and have the opportunity to buy shares in advance using preemptive rights; however, they face a dilemma. On the one hand, if they buy shares, they have to contend with a potential scenario in which the company’s future conditions are not as expected. On the other hand, if they do not buy shares, the increase in shares issued leads to a reduction in their proportion of ownership in the company (dilution). This research provides empirical evidence of the importance of determining the right time (timing) for the issuance of new shares in order to secure relatively cheap capital costs. Based on this description, the study aims to analyse the effect of equity market timing on new share issuance and capital structure in non-financial companies that con- ducted IPOs from the time of the IPO to IPO+5, and in companies that conducted RIs ranging from RI to RI+5 in Indonesia. Literature Review and Hypotheses Development Theories of capital structure that are widely known today are the theories of trade-off, pecking order and market timing (Huang & Ritter, 2005; 2009). Trade-off theory explains Pamungkas, Haryono, Djuminah, Bandi, & Setiawan Equity Market Timing Approach in IPO and Rights Issue of Companies in Indonesia Journal of Accounting and Investment, 2019 | 312 how a company will attempt to balance its funding costs using debt and equity in order to develop an optimal capital structure to secure tax savings but also avoid liquidity problems and agency conflicts (Stiglitz, 1969; Kraus & Litzenberger, 1973). An over- reliance on debt leads to asset substitution that can result in agency conflict between a company’s managers and debt holders (Jensen & Meckling, 1976). In contrast, too much equity can lead to a high level of free cash flow which itself generates agency conflict between managers and shareholders (Jensen, 1986). Pecking order theory explains how a company is most likely to finance its activities according to a hierarchy (sequence). The company would thus turn first to retained earnings, followed by long-term debt or bonds, hybrid bonds, and the issuing of new stock as a last resort due to a fear that asymmetric information can result in underpricing (Myers & Majluf, 1984; Myers, 2001). This theory assumes that managers act in accordance with the wishes of shareholders and ignore the differences in interests between old and new shareholders. It also assumes that shareholders are passive and that they act rationally by amending their portfolios if they are not in accordance with company policy (Myers, 2001). Market timing theory explains that a company’s capital structure is the cumulative result of its efforts in the past to determine when is the right time to enter the market (Baker & Wurgler, 2002). Based on this theory the company will issue new shares if the market conditions are favourable (overvalued) and will repurchase shares if the market conditions are unfavourable (undervalued) (Baker & Wurgler, 2002). Hypotheses Development Based on the market timing theory, a company performs a new share issuance if the market conditions are favourable and it repurchases shares in unfavourable market conditions (Baker & Wurgler, 2002). Favourable market conditions are expected to produce an increase in the value of the market to book ratio. This increase in the market to book ratio encourages companies to issue new shares through both IPOs and RIs (Rajan & Zingales, 1995; Pagano, Panetta, & Zingales, 1998; Hovakimian, Opler, & Titman, 2001). The effect of equity market timing on the issuance of new shares can occur because companies issue new shares in favourable market conditions (Baker & Wurgler, 2002) or hot market conditions (Alti, 2006). In hot market conditions, it is expected that the market to book ratio is high, meaning that companies will issue a greater number of new shares than are needed to satisfy their funding requirements (Alti, 2006). Alti (2006), Mahajan and Tartaroglu (2008) and Miswanto (2015) found that the market to book ratio of the previous year had a positive effect on the emission of new shares. Measurements using the market to book ratio of the previous year can be expected in favourable market conditions when the company issues new shares to the company who did the IPOs and RIs. In companies that conduct IPOs, investors do not have sufficient information, while in those that conduct RIs, investors are faced with the Pamungkas, Haryono, Djuminah, Bandi, & Setiawan Equity Market Timing Approach in IPO and Rights Issue of Companies in Indonesia Journal of Accounting and Investment, 2019 | 313 dilemma of whether or not to buy shares. If they buy shares, investors worry about whether the company will become unprofitable, while if they do not buy shares, their ownership will be diluted. Based on this explanation the following hypotheses are formed. H1: Equity market timing has a positive effect on the issuance of new shares in companies conducting IPOs. H2: Equity market timing has a positive effect on the issuance of new shares in companies conducting RIs. The issuance of new shares increases the amount of own capital and total assets at the same time as decreasing leverage. This decrease in leverage occurs when companies issue new shares in favourable market conditions and demonstrates the influence of market timing on equity capital structure (Baker & Wurgler, 2002). This is supported by the results of research by Alti (2006), Mahajan and Tartaroglu (2008), Bougatef and Chichti (2010) and Miswanto (2015), all of whom found that the previous year’s market to book ratio had a negative effect on changes in leverage. Measurements using the market to book ratio of the previous year can be expected in favourable market conditions when the company issues new shares, causing book equity and total assets to increase and leverage to decrease. Based on this explanation the following hypotheses are formed. H3: Equity market timing has a negative effect on capital structure for companies that conduct IPOs. H4: Equity market timing has a negative effect on capital structure for companies that conduct RIs. Research Method Research Sample The sample in this study comprised companies in the non-financial sector that conducted IPOs and RIs during the period 1990–2014. The inclusion criteria were as follows: companies with leverage of less than 100%, that had no prior experience of delisting and relisting, and that had submitted audited financial reports to the Indonesia Stock Exchange (formerly the Jakarta Stock Exchange). Research and Measurement Variables The dependent and independent variables in this study were set in accordance with Baker and Wurgler (2002). Net equity issuet (NEIt) was used to measure new stock Pamungkas, Haryono, Djuminah, Bandi, & Setiawan Equity Market Timing Approach in IPO and Rights Issue of Companies in Indonesia Journal of Accounting and Investment, 2019 | 314 issuance and the delta of book leverage (DBLt-(t-1)) was used to measure capital structure. The main independent variable is market to book ratiot-1 (MBt-1), which was used to measure favourable market conditions. The control variables consisted of tangibilityt-1 (TANGt-1), profitabilityt-1 (PROFt-1), sizet-1, and leverage from the previous year. For a company that conducted an IPO, the previous year’s leverage was measured using BLt-1, while for a company that undertook an RI, it was measured using DBL(t-1)-(t-2). All of the variables were measured as percentages (%), except for MBt-1 and sizet-1. The measurement of variables was conducted using the formula: NEIt = [{(book equityt – retained earningt)} – (book equityt-1 − retained earningt-1)}] : total assetst DBLt-(t-1) = BLt − BLt-1 BLt = book debtt : total assetst BLt-1 = book debtt-1 : total assetst-1 MBt-1 = market equityt-1: book equityt-1 TANGt-1 = property, plant, and equipmentt-1 : total assetst-1 PROFt-1 = earning before interest, tax, and depreciationt-1 : total assetst-1 sizet-1 = Ln salest-1 DBL(t-1)-(t-2) = BLt-1 − BLt-2 BLt-2 = book debtt-2 : total assetst-2 The research data were obtained from the Indonesia Stock Exchange (formerly the Jakarta Stock Exchange). For companies that conducted IPOs, the research data ranged from the pre-IPO year up to IPO+5, and for companies that conducted RIs, the data covered the period from the pre-rights issue up to RI+5. Prior to testing the hypotheses, we tested for robustness and classic assumptions. A robustness test was conducted because, following an IPO or rights issue, companies take various corporate actions, namely issuing bonus shares, stock dividends and stock splits, which leads to an increase in the number of shares. The robustness of the data was thus tested by adjusting the stock market price due to the increase in the number of shares. The results of the robustness test show that MBt-1 has the same value as before the adjustment was made. The classic assumption test was performed to obtain the best linear unbiased estimate of the regression analysis results. Hypotheses 1 and 3 for companies conducting IPO were tested using regression equations 1 and 3, while hypotheses 2 and 4 for companies that conducted RIs used regression equations 2 and 4. The control variable of DBL(t-1)-(t-2) was used in the hypotheses 2 and 4 tests respectively to avoid the occurrence of autocorrelation (Gujarati & Porter, 2009). The hypotheses 1 and 3 tests used BLt-1 because financial statement data for those companies conducting an IPO were available one year before the IPO was held (Baker & Wurgler, 2002). A hypothesis is declared supported if the results of the regression analysis have a probability value below 5%. The hypothesis testing in this study was conducted per period with no comparison between the test results of each period when stating whether a hypothesis is supported or unsupported. This was to determine whether, after the IPO or RI, favourable market conditions affect companies issuing new shares such that leverage declines. Pamungkas, Haryono, Djuminah, Bandi, & Setiawan Equity Market Timing Approach in IPO and Rights Issue of Companies in Indonesia Journal of Accounting and Investment, 2019 | 315 NEIt = b0 + b1MBt-1 + b2TANGt-1 + b3PROFt-1 + b4SIZEt-1 + b5BLt-1 + et ………… (1) NEIt = b0 + b1MBt-1 + b2TANGt-1 + b3PROFt-1 + b4SIZEt-1 + b5DBL(t-1)- (t-2) + et ………… (2) DBLt-(t-1) = b0 + b1MBt-1 + b2TANGt-1 + b3PROFt-1 + b4SIZEt-1 + b5BLt-1 + et ………… (3) DBLt-(t-1) = b0 + b1MBt-1 + b2TANGt-1 + b3PROFt-1 + b4SIZEt-1 + b5DBL(t-1)- (t-2) + et ………… (4) Result and Discussion Descriptive Statistics Table 1 Descriptive Statistics of Companies Conducting IPOs Dependent Variable NEIt IPO IPO+1 IPO+2 IPO+3 IPO+4 IPO+5 NEIt 29.6631 1.4407 2.7416 2.4879 2.0600 1.6778 (17.1432) (4.8330) (7.4052) (5.9759) (5.9351) (5.0462) MBt-1 3.0366 2.3382 1.9779 1.8787 1.8355 1.5963 (3.3464) (1.5905) (1.5357) (1.8180) (1.7847) (1.6622) TANGt-1 40.7161 35.1407 36.6365 36.7249 37.7177 36.4790 (27.1753) (24.2164) (24.5332) (24.0855) (23.6846) (23.5146) PROFt-1 14.9592 12.7141 12.0348 10.9937 11.0742 11.6249 (10.9177) (7.9687) (8.7149) (9.1396) (9.8852) (9.1198) SIZEt-1 11.2673 11.4236 11.4691 11.4501 11.4885 11.5065 (0.8359) (0.7720) (0.8140) (0.8187) (0.8344) (0.8086) BLt-1 55.2786 38.3541 41.3082 42.7452 45.9622 46.4747 (20.6605) (18.1011) (18.2357) (19.9694) (21.5135) (22.6326) N 293 275 248 226 205 186 The first row contains the mean values The second row, with figures in brackets, shows the standard deviation values Table 2 Descriptive Statistics of Companies Conducting IPOs Dependent Variable DBLt-(t-1) IPO IPO+1 IPO+2 IPO+3 IPO+4 IPO+5 DBLt-(t-1) -16.8353 2.7722 1.7525 3.3940 1.2427 2.1022 (15.3429) (9.2584) (9.1185) (9.3411) (8.2873) (9.3721) MBt-1 3.0540 2.3112 1.9936 1.9277 1.8305 1.5793 (3.3513) (1.5863) (1.5404) (1.8497) (1.7056) (1.6327) TANGt-1 40.8559 34.8390 36.0628 37.31993 37.7580 37.1802 (27.2557) (24.2641) (24.1069) (23.5181) (22.9082) (23.7196) PROFt-1 15.0193 12.5613 12.1921 11.2686 11.8341 11.5149 (10.9225) (7.9539) (8.3160) (8.7275) (7.9102) (9.2380) SIZEt-1 11.2833 11.4150 11.4846 11.4940 11.5190 11.4907 (0.8238) (0.7718) (0.7939) (0.7862) (0.8247) (0.8304) BLt-1 55.1745 38.5712 41.8158 43.8051 46.4207 46.9896 (20.2255) (18.0327) (17.7745) (19.3305) (21.1775) (22.2972) N 291 274 244 222 201 194 The first row contains the mean values The second row, with figures in brackets, shows the standard deviation values Pamungkas, Haryono, Djuminah, Bandi, & Setiawan Equity Market Timing Approach in IPO and Rights Issue of Companies in Indonesia Journal of Accounting and Investment, 2019 | 316 Tables 1 and 2 show that at the time of the IPO, the companies issued a large number of new shares totalling 29.6631%, which reduced leverage by 16.8353%. After the IPO, i.e. from IPO+1 to IPO+5, companies issued new debt and also conducted a small-scale new share issuance in balanced proportions. Tables 3 and 4 shows that at the time of their RIs, the companies issued a large number of new shares totalling 27.4939%, enabling them to reduce leverage by 10.2103%. Following the RIs, i.e. from RI+1 to RI+4, the companies issued both new debt and shares in small amounts and in balanced proportions. By RI+5, the companies had reduced their issuance of new debt to a very small amount, i.e. 0.4981%. Table 3 Descriptive Statistics of Companies Conducting RIs Dependent Variable NEIt RI RI+1 RI+2 RI+3 RI+4 RI+5 NEIt 27.4939 2.3533 3.2191 2.0381 2.2077 2.6994 (19.8644) (9.5408) (12.4115) (9.9325) (8.7008) (8.2109) MBt-1 2.2727 1.7180 1.5848 1.4041 1.4686 1.2808 (2.3049) (1.7013) (1.4501) (1.1407) (1.2863) (1.0832) TANGt-1 41.9843 39.2738 40.0671 39.0617 38.6180 39.6091 (24.7589) (23.5497) (23.1434) (23.1407) (23.8400) (22.5939) PROFt-1 10.2406 9.9724 10.9152 11.2961 10.6654 11.1041 (8.8900) (7.7968) (9.2100) (9.6998) (8.9842) (9.1114) SIZEt-1 11.5558 11.7021 11.8122 11.8746 11.9046 11.9328 (0.8537) (0.7948) (0.7898) (0.8211) (0.7812) (0.7733) DBL(t-1)-(t- 2) 2.7708 -10.4878 1.7885 0.6665 1.5776 0.3518 (13.5381) (19.5890) (9.9168) (10.6603) (10.6425) (11.5053) N 174 170 155 142 125 115 The first row contains the mean values The second row, with figures in brackets, shows the standard deviation values Table 4 Descriptive Statistics of Companies Conducting RIs Dependent Variable DBLt-(t-1) RI RI+1 RI+2 RI+3 RI+4 RI+5 DBLt-(t-1) -10.2103 1.7718 1.0268 1.0344 1.3799 -0.4981 (20.1579) (9.5867) (10.0467) (9.3566) (9.3566) (7.1800) MBt-1 2.2523 1.7155 1.5848 1.4041 1.3617 1.2894 (2.2750) (1.6966) (1.4501) (1.1407) (1.1396) (1.0892) TANGt-1 41.8126 39.3966 40.0671 39.0617 38.6171 40.0905 (24.8318) (23.5353) (23.1434) (23.1407) (23.6797) (23.3955) PROFt-1 10.2840 9.9359 10.9152 11.2961 10.2928 11.5667 (9.2756) (7.7885) (9.2100) (9.6981) (8.1964) (10.3222) SIZEt-1 11.5305 11.6940 11.8122 11.8746 11.8828 11.9400 (0.8550) (0.7994) (0.7898) (0.8211) (0.8159) (0.7827) BLt-1 2.4671 -10.5261 1.7885 0.6665 1.3644 0.1045 (13.4456) (19.5377) (9.9168) (10.6603) (10.4766) (10.1790) N 180 171 155 142 122 109 The first row contains the mean values The second row, with figures in brackets, shows the standard deviation values Pamungkas, Haryono, Djuminah, Bandi, & Setiawan Equity Market Timing Approach in IPO and Rights Issue of Companies in Indonesia Journal of Accounting and Investment, 2019 | 317 Regression Analysis Results Table 5 shows that at the time of the IPO, IPO+1 and IPO+2, MBt-1 had a positive effect on NEIt. This finding is in accordance with those of Baker and Wurgler (2002), Hogfeldt and Oborenko (2005), Alti (2006), Mahajan and Tartaroglu (2008) and Miswanto (2015). These results support hypothesis 1. The findings indicate that at the time of the IPO, IPO+1 and IPO+2, there was an effect of equity market timing on new share issuance. Table 5 Regression Analysis Results of Companies Conducting IPOs Dependent Variable NEIt IPO IPO+1 IPO+2 IPO+3 IPO+4 IPO+5 C 99.4886 4.8782 2.7966 10.3979 -1.6575 -8.2656 (0.0000) (0.2868) (0.7075) (0.0848) (0.7886) (0.1712) MBt-1 0.7725 0.4957 0.9778 0.1792 0.1043 0.1373 (0.0091) (0.0085) (0.0061) (0.4417) (0.6661) (0.5718) TANGt-1 -0.0586 0.0092 0.0477 0.0027 0.0451 0.0408 (0.0931) (0.4456) (0.0128) (0.1017) (0.0113) (0.0095) PROFt-1 0.2971 0.0271 -0.0023 0.0770 0.0566 -0.0260 (0.0014) (0.4796) (0.9690) (0.1068) (0.2149) (0.5701) SIZEt-1 -7.1610 -0.6136 -0.3166 -1.0698 0.0256 0.6400 (0.0000) (0.1529) (0.6579) (0.0598) (0.9645) (0.2633) BLt-1 0.1168 0.0456 0.0015 0.0507 0.0196 0.0253 (0.0194) (0.0117) (0.9597) (0.0231) (0.3539) (0.1594) R 2 0.1415 0.0516 0.0631 0.0524 0.0574 0.0711 F 9.4619 2.9249 3.2718 2.4326 2.4248 2.7551 (0.0000) (0.0137) (0.0071) (0.0360) (0.0368) (0.0200) N 293 275 248 226 205 186 The first row shows the regression coefficient values The second row, with figures in brackets, shows the probability values Table 6 Regression Analysis Results of Companies Conducting RIs Dependent Variable NEIt RI RI+1 RI+2 RI+3 RI+4 RI+5 C 147.8949 -0.7032 4.0929 -26.3716 13.9982 8.9392 (0.0000) (0.9467) (0.7878) (0.0329) (0.2498) (0.4492) MBt-1 2.1679 2.1763 2.1049 1.7013 1.3990 1.0633 (0.0000) (0.0000) (0.0021) (0.0219) (0.0265) (0.1288) TANGt-1 -0.0347 0.0557 -0.0124 0.0707 -0.0457 0.0386 (0.4612) (0.0571) (0.7744) (0.0624) (0.1642) (0.2605) PROFt-1 -0.3601 -0.1003 0.1719 -0.2084 -0.2038 -0.1650 (0.0134) (0.2874) (0.1371) (0.0328) (0.0278) (0.0594) SIZEt-1 -10.4593 -0.1342 -0.5205 2.1572 -0.8283 -6161 (0.0000) (0.8826) (0.6849) (0.0390) (0.4142) (0.5353) DBL(t-1)-(t-2) 0.2302 0.0285 0.3125 -0.0049 -0.0292 0.1473 (0.0134) (0.4346) (0.0024) (0.9513) (0.6948) (0.0269) R 2 0.4081 0.1946 0.1275 0.0898 0.0940 0.1068 F 23.1639 7.9253 4.3528 2.6841 2.4695 2.6073 (0.0000) (0.0000) (0.0010) (0.0240) (0.0363) (0.0288) N 174 170 155 142 125 115 The first row shows the regression coefficient values The second row, with figures in brackets, shows the probability values Pamungkas, Haryono, Djuminah, Bandi, & Setiawan Equity Market Timing Approach in IPO and Rights Issue of Companies in Indonesia Journal of Accounting and Investment, 2019 | 318 Table 6 shows that at the time of the RI, RI+1, RI+2, RI+3 and RI+4, MBt-1 had a positive effect on NEIt. This finding is in accordance with those of Baker and Wurgler (2002), Hogfeldt and Oborenko (2005), Alti (2006), Mahajan and Tartaroglu (2008) and Miswanto (2015). These results support hypothesis 2. The findings indicate that at the time of the RI, RI+1, RI+2, RI+3 and RI+4, there was an influence of equity market timing on new share issuance. Table 7 Regression Analysis Results of Companies Conducting IPOs Dependent Variable DBLt-(t-1) IPO IPO+1 IPO+2 IPO+3 IPO+4 IPO+5 C -54.5702 -3.0492 7.1481 12.7818 5.9239 -7.1665 (0.0000) (0.7305) (0.4435) (0.1868) (0.4920) (0.5011) MBt-1 -0.9643 -0.1607 0.1537 0.3438 0.3312 -0.0142 (0.0000) (0.6556) (0.7063) (0.3360) (0.3737) (0.9747) TANGt-1 0.0424 0.0244 0.0105 0.0330 -0.0203 -0.1674 (0.1084) (0.2907) (0.6637) (0.2152) (0.4261) (0.5526) PROFt-1 -0.1856 0.1060 -0.1890 -0.1417 -0.2558 -0.1034 (0.0081) (0.1505) (0.0136) (0.0691) (0.0019) (0.2175) SIZEt-1 5.7614 0.7020 -0.0493 -0.5117 -0.0499 1.4184 (0.0000) (0.3991) (0.9559) (0.5700) (0.9502) (0.1629) BLt-1 -0.4218 -0.1037 -0.0768 -0.0868 -0.0198 -0.1125 (0.0000) (0.0033) (0.0415) (0.0155) (0.5087) (0.0008) R 2 0.3888 0.0486 0.0478 0.0536 0.0607 0.0634 F 36.2615 2.7071 2.3886 2.4444 2.5200 2.5445 (0.0000) (0.0197) (0.0387) (0.0352) (0.0309) (0.0296) N 291 274 244 222 201 194 The first row shows the regression coefficient values The second row, with figures in brackets, shows the probability values Table 8 Regression Analysis Results of Companies Conducting RIs Dependent Variable DBLt-(t-1) RI RI+1 RI+2 RI+3 RI+4 RI+5 C -2.3204 21.6919 20.9656 20.3924 24.7328 -14.9771 (0.9108) (0.0466) (0.1296) (0.1000) (0.0458) (0.1525) MBt-1 -1.5190 -1.7614 -0.3567 -0.6879 -0.1956 -0.2917 (0.0192) (0.0001) (0.5584) (0.3533) (0.7872) (0.6409) TANGt-1 -0.0191 -0.0642 0.0024 0.0861 0.0640 0.0200 (0.7470) (0.0341) (0.9494) (0.0246) (0.0724) (0.4924) PROFt-1 -0.2007 -0.0384 -0.2518 -0.1860 -0.2682 -0.1368 (0.2389) (0.6940) (0.0169) (0.0579) (0.0112) (0.0458) SIZEt-1 -0.0495 -1.1753 -1.3988 -1.6555 -1.9260 1.3111 (0.9779) (0.2102) (0.2298) (0.1144) (0.0619) (0.1335) DBL(t-1)-(t-2) -0.4200 0.0232 -0.1132 0.0073 0.0665 -0.1778 (0.0003) (0.0539) (0.2180) (0.9278) (0.4102) (0.0090) R 2 0.1039 0.1426 0.0721 0.0985 0.1301 0.1141 F 4.0339 5.4885 2.3142 2.9731 3.4702 2.6528 (0.0017) (0.0001) (0.0466) (0.0140) (0.0058) (0.0268) N 180 171 155 142 122 109 The first row shows the regression coefficient values The second row, with figures in brackets, shows the probability values Pamungkas, Haryono, Djuminah, Bandi, & Setiawan Equity Market Timing Approach in IPO and Rights Issue of Companies in Indonesia Journal of Accounting and Investment, 2019 | 319 Table 7 shows that at the time of the IPO, MBt-1 had a negative effect on DBLt-(t-1). This finding is in accordance with the findings of Baker and Wurgler (2002), Alti (2006) and Miswanto (2015). These results support hypothesis 3. The findings indicate that at the time of the IPO, there was an influence of equity market timing on the capital structure. Table 8 shows that at the time of the RI and RI+1, MBt-1 had a negative effect on DBLt-(t-1). This finding is in accordance with the findings of Baker and Wurgler (2002), Alti (2006) and Miswanto (2015). These results support hypothesis 4. The findings indicate that at the time of the RI and RI+1, there was an influence of equity market timing on capital structure. At the time of the IPO, RI and RI+1 there was an influence of equity market timing on the issuance of new shares and capital structure. At the time of the IPO and RI, favourable market conditions influenced the companies to issue a large volume of new shares, 29.6631% and 27.4939% respectively, leading to a fall in leverage of 16.8353% and 10.2103% respectively. This decrease in leverage has an implication in the form of a tendency for the capital structure to decline. At the time of RI+1, the market conditions were of benefit to the companies issuing new shares by the amount of 2.3533%, yet they were not able to raise the funds needed to issue new debt of 1.7718%. The issuance of new shares and the issuance of new debt are able to reduce the capital structure. At the time of IPO+1, IPO+2, RI+1, RI+2, RI+3 and RI+4, there was an influence of equity market timing on the issuance of new shares. At the time of IPO+1, IPO+2, RI+1, RI+2, RI+3 and RI+4, market conditions remained profitable, but the companies issued small amounts of new shares and new debt in balanced proportions. This was due firstly to the effect of the favourable market conditions at the time of the IPO and RI in terms of influencing the companies to issue large numbers of new shares, in excess of the volumes they needed to satisfy their funding requirements (Alti, 2006). Second, the companies tried to adjust their capital structures to an optimal level (Xu, 2009) in a gradual manner (Surwanti, 2015). Third, the majority shareholders of the company are concentrated (Hogfeldt & Oborenko, 2005). In Indonesia, the majority shareholders of companies are concentrated in the form of institutional ownership, accounting for an ownership level of 70.5621% (Pamungkas, Haryono, Djuminah, & Bandi, 2017). This shows that decisions to use equity market timing in issuing new shares are determined more by majority shareholders than management (Novelina, 2008). Fourth, the old shareholders (incumbents) worry about their ownership becoming diluted if the company issues large amounts of new shares, which can cause dilution even if the old shareholders obtain a transfer of profits from new shareholders (Hogfeldt Pamungkas, Haryono, Djuminah, Bandi, & Setiawan Equity Market Timing Approach in IPO and Rights Issue of Companies in Indonesia Journal of Accounting and Investment, 2019 | 320 & Oborenko, 2005). Fifth, for companies carrying out RIs, the old shareholders face a dilemma; that is, if they do not buy the shares offered, this may lead to a dilution, but if they do buy the shares offered, they will be concerned about whether or not the future prospects of the company will be as expected. These findings add to the previous findings, namely to the application of capital structure theory, in that the theories of trade-off, pecking order and market timing are not mutually exclusive. In this research, it was found that the trade-off theory and market timing theory are not mutually exclusive. This is shown by the results of the research, namely that at the time of IPO+1, RI+1, RI+2, RI+3 and RI+4, there was an influence of equity market timing on new share issuance, but the companies nevertheless undertook a small issuance of new shares in a bid to adjust their capital structure to an optimal level. This is in accordance with the trade-off theory. The companies adopted this policy because, at the time of the IPO and RI, they issued large amounts of new shares totalling 29.6631% (Table 1) and 27.4939% (Table 2). The results of this study add to the results of previous studies by Cotei and Farhat (2009) and Serrasqueiro and Nunes (2010) which showed that the trade-off and pecking order theories are not mutually exclusive. Miswanto (2015) demonstrated that the pecking order theory and market timing are not mutually exclusive. Conclusion At the time of the IPO, RI and RI+1, there was an effect of equity market timing on the issuance of new shares and capital structure. At the time of IPO+1, IPO+2, RI+2, RI+3 and RI+4 there was an effect of equity market timing on the issuance of new shares. This finding adds to the previous findings, namely the application of capital structure theory, in that the theories of trade-off, pecking order and market timing are not mutually exclusive. This study adds to the findings of previous studies in terms of identifying that trade-off theory and market timing theory are not mutually exclusive. Previous studies found that trade-off theory with pecking order theory, and pecking order theory with market timing, were not mutually exclusive. At the time of IPO+1, IPO+2, RI+1, RI+2, RI+3 and RI+4, stock prices were relatively high, but there was a greater opportunity for obtaining capital gains in the short term. As stock prices tend to increase, this was therefore a good time for short-term investors to invest in shares. Long-term investors, in contrast, should invest at IPO+3 and RI+5 because the stock price is relatively the same as the book value, while in the short term the stock price tends to be relatively stable. This study has the limitation of using a sample of companies in Indonesia. In order for subsequent research to obtain more comprehensive results, companies in ASEAN or South East Asia should be included in the sample. Pamungkas, Haryono, Djuminah, Bandi, & Setiawan Equity Market Timing Approach in IPO and Rights Issue of Companies in Indonesia Journal of Accounting and Investment, 2019 | 321 Appendix Table 9 Regression Analysis Results for Data Robustness Test of Companies Conducting IPOs Dependent Variable NEIt IPO IPO+1 IPO+2 IPO+3 IPO+4 IPO+5 C 99.4886 4.8078 2.8314 9.6430 -1.8397 -9.3321 (0.0000) (0.2933) (0.7096) (0.1133) (0.7692) (0.1261) MBt-1 0.7725 0.4893 0.7030 -0.0590 0.0291 -0.0361 (0.0091) (0.0058) (0.0410) (0.7988) (0.9179) (0.8987) TANGt-1 -0.0586 0.0089 0.0478 0.0267 0.0452 0.0407 (0.0931) (0.4580) (0.0129) (0.1050) (0.0114) (0.0097) PROFt-1 0.2971 0.0287 0.0123 0.0893 0.0588 -0.0294 (0.0014) (0.4508) (0.8318) (0.0590) (0.1959) (0.6446) SIZEt-1 -7.1610 -0.6088 -0.3021 -0.9853 0.0473 0.7478 (0.0000) (0.1555) (0.6790) (0.0860) (0.9359) (0.1963) BLt-1 0.1168 0.0457 0.0046 0.0528 0.0210 0.0259 (0.0194) (0.0115) (0.8768) (0.0176) (0.3175) (0.1492) R 2 0.1415 0.0540 0.0471 0.0501 0.0566 0.0695 F 9.4619 3.0724 2.3923 2.3212 2.3874 2.6896 (0.0000) (0.0103) (0.0384) (0.0442) (0.0395) (0.0227) N 293 275 248 226 205 186 The first row shows the regression coefficient values The second row, with figures in brackets, shows the probability values Table 10 Regression Analysis Results for Data Robustness Test of Companies Conducting RIs Dependent Variable NEIt RI RI+1 RI+2 RI+3 RI+4 RI+5 C 147.8949 -0.7032 4.4064 -25.1946 13.6845 8.9700 (0.0000) (0.9467) (0.7733) (0.0412) (0.2599) (0.4475) MBt-1 2.1679 2.1763 1.9953 1.9454 1.8174 1.3138 (0.0000) (0.0000) (0.0054) (0.0165) (0.0204) (0.1253) TANGt-1 -0.0347 0.0557 -0.0113 0.0690 -0.0509 0.0372 (0.4612) (0.0571) (0.7948) (0.0676) (0.1223) (0.2775) PROFt-1 -0.3601 -0.1003 0.1732 -0.2090 -0.1828 -0.1417 (0.0134) (0.2874) (0.1377) (0.0318) (0.0426) (0.1018) SIZEt-1 -10.4593 -0.1342 -0.5052 2.0787 -0.7866 -0.6116 (0.0000) (0.8826) (0.6954) (0.0469) (0.4373) (0.5382) DBL(t-1)-(t-2) 0.2302 0.0285 0.3054 0.0012 -0.3889 -0.1487 (0.0134) (0.4346) (0.0031) (0.9880) (0.5986) (0.0257) R 2 0.4081 0.1946 0.1171 0.0931 0.0974 0.1072 F 23.1639 7.9253 3.9540 2.7932 2.5690 2.6169 (0.0000) (0.0000) (0.0021) (0.0196) (0.0303) (0.0283) N 174 170 155 142 125 115 The first row shows the regression coefficient values The second row, with figures in brackets, shows the probability values Pamungkas, Haryono, Djuminah, Bandi, & Setiawan Equity Market Timing Approach in IPO and Rights Issue of Companies in Indonesia Journal of Accounting and Investment, 2019 | 322 Table 11 Regression Analysis Results for Data Robustness Test of Companies Conducting IPOs Dependent Variable DBLt-(t-1) IPO IPO+1 IPO+2 IPO+3 IPO+4 IPO+5 C -54.5702 -3.2341 7.6897 12.8516 7.3896 -7.5270 (0.0000) (0.7150) (0.4160) (0.1891) (0.3972) (0.4828) MBt-1 -0.9643 -0.0047 0.2185 0.2308 0.5427 -0.0842 (0.0000) (0.9888) (0.6064) (0.5167) (0.1842) (0.8713) TANGt-1 0.0424 0.0255 0.0102 0.0325 -0.0192 -0.0168 (0.1084) (0.2676) (0.6717) (0.2218) (0.4507) (0.5506) PROFt-1 -0.1856 0.0988 -0.1890 -0.1333 -0.2615 -0.1027 (0.0081) (0.1780) (0.0127) (0.0842) (0.0013) (0.2468) SIZEt-1 5.7614 0.6910 -0.1038 -0.5090 -0.2046 1.4569 (0.0000) (0.4066) (0.9085) (0.5763) (0.8010) (0.1552) BLt-1 -0.4218 0.1037 -0.0768 -0.0844 -0.0157 -0.1127 (0.0000) (0.0033) (0.0410) (0.0181) (0.5956) (0.0007) R 2 0.3888 0.0479 0.0483 0.0513 0.0654 0.0635 F 36.2615 2.6952 2.4146 2.3375 2.7281 2.5500 (0.0000) (0.0214) (0.0368) (0.0430) (0.0209) (0.0293) N 291 274 244 222 201 194 The first row shows the regression coefficient values The second row, with figures in brackets, shows the probability values Table 12 Regression Analysis Results for Data Robustness Test of Companies Conducting RIs Dependent Variable DBLt-(t-1) RI RI+1 RI+2 RI+3 RI+4 RI+5 C -2.3204 21.6912 21.2642 19.6289 25.3698 -14.3664 (0.9108) (0.0466) (0.1236) (0.1120) (0.0405) (0.1712) MBt-1 -1.5190 -1.7614 -0.5908 -1.1852 -0.8511 -0.5378 (0.0192) (0.0001) (0.3538) (0.1429) (0.3055) (0.4606) TANGt-1 -0.0191 -0.0462 0.0023 0.0844 0.0656 0.0202 (0.7470) (0.0341) (0.9522) (0.0262) (0.0645) (0.4861) PROFt-1 -0.2007 -0.0384 -0.2436 -0.1778 -0.2509 -0.1386 (0.2389) (0.6940) (0.0209) (0.0682) (0.0181) (0.0398) SIZEt-1 -0.0495 -1.1753 -1.4089 -1.5612 -1.9431 1.2681 (0.9779) (0.2102) (0.2257) (0.1357) (0.0586) (0.1474) DBL(t-1)-(t-2) -0.4200 0.0232 -0.1129 0.0054 0.0657 -0.1749 (0.0003) (0.5395) (0.2182) (0.9466) (0.4124) (0.0102) R 2 0.1039 0.1426 0.0753 0.1070 0.1375 0.1169 F 4.0339 5.4885 2.4263 3.2605 3.6969 2.7271 (0.0017) (0.0001) (0.0379) (0.0082) (0.0039) (0.0235) N 180 171 155 142 122 109 The first row shows the regression coefficient values The second row, with figures in brackets, shows the probability values Pamungkas, Haryono, Djuminah, Bandi, & Setiawan Equity Market Timing Approach in IPO and Rights Issue of Companies in Indonesia Journal of Accounting and Investment, 2019 | 323 References Alti, A. (2006). How Persistent Is the Impact of Market Timing on Capital Structure. The Journal of Finance, 61(4), 1681-1710. https://doi.org/10.1111/j.1540- 6261.2006.00886.x Asri, M. (2013). Keuangan Keperilakuan. Edisi Pertama. Yogyakarta: BPFE. Baker, M., & Wurgler, J. (2002). Market Timing and Capital Structure. The Journal of Finance, 57(1), 1-32. https://doi.org/10.1111/1540-6261.00414 Bougatef, K., & Chichti, J. (2010). Equity Market Timing and Capital Structure: Evidence from Tunisia and France. International Journal of Business and Management, 5(10), 167- 177. https://doi.org/10.5539/ijbm.v5n10p167 Celik, S., & Akarim, Y. D. (2013). Does Market Timing Drive Capital Structure? Empirical Evidence from an Emerging Market. International Journal of Economics and Financial Issues, 3(1), 140-152. http://www.econjournals.com/index.php/ijefi/article/view/347/pdf Cotei, C., & Farhat, J. (2009). The Trade-Off Theory and The Pecking Order Theory: Are They Mutually Exclusive? North American Journal of Finance and Banking Research, 3(3), 1-16. https://doi.org/10.2139/ssrn.1404576 Felicia & Saragih, F. D. (2015). Analisis Pengaruh Market Timing terhadap Struktur Modal Perusahaan non-Keuangan yang Terdaftar di Bursa Efek Indonesia. Jurnal Administrasi Bisnis, 11(2), 101-116. Gujarati, D. N., & Porter, D. C. (2009). Basics Econometrics. 5th Edition. New York: McGraw- Hill. Hogfeldt, P., & Oborenko, A. (2005). Does Market Timing or Enhanced Pecking Order Determine Capital Structure? European Coporate Governance Insititute (EGI). Research Paper No. 072/2005. https://dx.doi.org/10.2139/ssrn.592501 Hovakimian, A., Opler, T., & Titman, S. (2001). The Debt-equity choice. Journal of Financial and Quantitative Analysis, 36(1),: 1-24. https://doi.org/10.2307/2676195 Huang, R., & Ritter, J. R. (2005). Testing the Market Timing Theory of Capital Structure. Working Paper. Kennesaw State University & University of Florida. https://www.jstor.org/stable/40505924 Huang, R., & Ritter, J. R. (2009). Testing Theories of Capital Structure and Estimating the Speed of Adjustment. Journal of Financial and Quantitative Analysis, 44(2), 237-271. https://doi.org/10.1017/s0022109009090152 Jegadeesh, N. (2000). Long-Term Performance of Seasoned Equity Offerings: Benchmark Errors and Biases in Expectations. Financial Management, 29(3), 5-30. https://doi.org/10.2307/3666227 Jensen, M. C. (1986). Agency Cost of Free Free Cash Flow, Corporate Finance, and Takeovers. American Economis Review, 76(2), 323-329. https://doi.org/10.2139/ssrn.99580 Jensen, M. C., & Meckling, W. H. (1976). Theory of the Firm: Managerial Behavior, Agency Cost and Ownership Structure. Journal of Financial Economics, 3(4), 305-360. https://doi.org/10.1016/0304-405X(76)90026-X Kraus, A. & Litzenberger, R. H. (1973). A State Preference Model of Optimal Financial Leverage. Jornal of Finance, 28(4), 911-922. https://doi.org/10.2307/2978343 Loughran, T., & Ritter, J. R. (1995). The New Issues Puzzle. The Journal of Finance, 50(1), 23-51. https://doi.org/10.2307/2329238 https://doi.org/10.1111/j.1540-6261.2006.00886.x https://doi.org/10.1111/j.1540-6261.2006.00886.x https://doi.org/10.1111/1540-6261.00414 https://doi.org/10.5539/ijbm.v5n10p167 http://www.econjournals.com/index.php/ijefi/article/view/347/pdf https://doi.org/10.2139/ssrn.1404576 https://dx.doi.org/10.2139/ssrn.592501 https://doi.org/10.2307/2676195 https://www.jstor.org/stable/40505924 https://doi.org/10.1017/s0022109009090152 https://doi.org/10.2307/3666227 https://doi.org/10.2139/ssrn.99580 https://doi.org/10.1016/0304-405X(76)90026-X https://doi.org/10.2307/2978343 https://doi.org/10.2307/2329238 Pamungkas, Haryono, Djuminah, Bandi, & Setiawan Equity Market Timing Approach in IPO and Rights Issue of Companies in Indonesia Journal of Accounting and Investment, 2019 | 324 Mahajan, A., & Tartaroglu, S. (2008). Equity Market Timing and Capital Structure: International Evidence. Journal of Banking and Finance, 8, 754-766. https://doi.org/10.1016/j.jbankfin.2007.05.007 Miswanto. (2015). Market Timing Equitas dan Pengaruhnya terhadap Struktur Modal Perusahaan di Indonesia. Disertasi. Universitas Gadjah Mada, Fakultas Ekonomi dan Bisnis, Program Doktor Manajemen, Yogyakarta. Myers, S. C. (2001). Capital Structure. The Journal of Economic Perspectives, 15(2), 81-102. https://doi.org/10.1257/jep.15.2.81 Myers, S. C., & Majluf, N. S. (1984). Corporate Financing and Investment Decisions when Firms Have Information that Investors do not Have. Journal of Financial Economics, 13, 187-221. https://doi.org/10.1016/0304-405x(84)90023-0 Novelina, N. (2008). Enchanced Pecking Order Theory dan (Modified) Trade-off Theory. Tesis, Magister Sains Ilmu-ilmu Ekonomi, Fakultas Ekonomi Universitas Gadjah Mada, Yogyakarta, Indonesia. Pagano, M., Panetta, F., & Zingales, L. (1998). Why Do Companies Go Public? An Empirical Analysis. The Journal of Finance, 53(1), 27-64. https://doi.org/10.3386/w5367 Pamungkas, W. S., Haryono, T., Djuminah, & Bandi (2017). The Effect of Opportunity Set, Dividend Payout, and Capital Strukture Moderate by Institutional Ownership Toward Stock Price to Indonesia Stock Exchange. Makalah Penelitian. Makalah disampaikan di The 3rd International Conference on Management Sciences 2017, 22 Maret 2017, Universitas Muhammadiyah Yogyakarta, Indonesia. Rajan, R. G., & Zingales, L. (1995). What Do We Know about Capital Structure? Some Evidence from International Data. The Journal of Finance, 1(5), 1421-1460. https://doi.org/10.3386/w4875 Sawitri, N. A., & Suhari, E. (2009). Analisis Market Timing dan Struktur Modal. Jurnal Bisnis dan Manajemen, 9(2), 171-180. Serrasqueiro, Z. S., & Nunes, P. M. (2010). Are trade-off and pecking order theories mutually exclusive in explaining capital structure decisions? African Journal of Business Management, 4(11), 2216-2230. https://www.researchgate.net/publication/267939518 Setyawan, I. R. (2011). An Empirical Study on Market Timing Theory of Capital Structure. International Research Journal of Business Studies, 4(2), 103-119. https://doi.org/10.21632/irjbs.4.2.103-119 Stiglitz, J. E. (1969). A Re-Examination of the Modigliani-Miller Theorem. The American Economic Review, 59(5), 784-793. http://www.jstor.org/stable/1810676 Surwanti, A. (2015). Kecepatan Penyesuaian Leverage Perusahaan di Indonesia: Pengujian Model Dinamis. Disertasi, Program Doktor Manajemen, Fakultas Ekonomika dan Bisnis Universitas Gadjah Mada, Yogyakarta, Indonesia. Susilawati, C. E. (2012). Implikasi Market Timing pada Struktur Modal. Jurnal Manajemen, 16(1), 1-16. Xu, Z. (2009). The Impact of Market Timing on Canadian and U.S. Firms’ Capital Structure. Working Paper, Bank of Canada. https://www.researchgate.net/publication/23999887 https://doi.org/10.1016/j.jbankfin.2007.05.007 https://doi.org/10.1257/jep.15.2.81 https://doi.org/10.1016/0304-405x(84)90023-0 https://doi.org/10.3386/w5367 https://doi.org/10.3386/w4875 https://www.researchgate.net/publication/267939518 https://doi.org/10.21632/irjbs.4.2.103-119 http://www.jstor.org/stable/1810676 https://www.researchgate.net/publication/23999887