SENTIMEN INVESTOR, KENDALA KEUANGAN,DAN EQUITY MARKET TIMING

Abstract

This study attempts to find empirical evi-dences on whether capital structure of manufacturing companies listed on the Indonesia Stock Exchange (IDX) is consis-tent with that predicted by the equity mar-ket timing theory. We find three interesting findings in this study. First, capital struc-ture of manufacturing companies listed on the Indonesia Stock Exchange is consis-tent with prediction by equity market tim-ing theory that aims at capitalizing mispricing. Second, the investors’ senti-ment would reinforce the equity market tim-ing practice, where the equity market tim-ing will show higher prevalence when in-vestors’ sentiment is high. This finding sup-ports the studies by Baker and Wurgler (2002) and Baker et al (2007), which as-sert that the purpose of equity market tim-ing is to capitalize mispricing. It also sup-ports the studies by Kim and Shamsuddin (2008) and Hoque et al (2007), which note that Indonesian capital market is inefficient, and there is an indication that it is in the form of semi-strong form of market efficiency.Third, equity market timing would be practiced by a company when it has no financial constraint. When the firm has no financial constraint, it may have access to external source of financing so that it has a greater opportunity to practice equity mar-ket timing strategy. This, consequently, may reduce the market timing practice. This find-ing supports the study by Korajzcyk dan Levy (2003), which found that market tim-ing shall be exercised by firms that have no financial constraints.