Do the Firms Utilize Market Timing? Capital Structure of Restaurant Firms by Pecking Order and Market Timing Theories

ABSTRACT The purpose of this study is to examine whether restaurant firms prefer debt to equity financing and utilize market timing well in equity financing during firm value maximization. For this purpose, two theories were applied – pecking order and market timing. Secondary financial data was collected from restaurant firms based in the United States. Subsequently, bivariate correlation, fixed and random effects, and pooled Ordinary Least Square (OLS) analyses were performed on the statistical data. The analysis outcomes support the pecking order theory, meaning that restaurant firms rely significantly on debt over equity in financing decisions. The analysis outcomes of the market timing proxy indicate that restaurant firms either do not use market timing enough or do not have a sufficient window of opportunity (firm value maximization) for equity financing. Although the restaurant industry has a relatively higher liability ratio than other industries, its financing decisions combining debt and equity have never been examined. The theoretical and managerial implications have been suggested in terms of balancing debt and equity financing decisions and the influence of corporate governance structure on financing decisions.