Is market timing good for shareholders

Corporations often transact in their own mispriced stock. This activity, known as equity market timing, can generate substantial profits and increase the long-term stock price. We challenge a closely related popular view that market timing always benefits firm shareholders. Opportunistic financing maneuvers by a firm can negatively affect its uninformed stock owners because of adverse selection and the change in the firm's short-term price, whereas the long-term returns do not accumulate to departing stockholders. The negative effect of market timing on stockholders increases with the share turnover. Furthermore, the effect of timing is asymmetric: shareholders prefer that the firm corrects underpricing rather than overpricing. Our theory can be used to better interpret the observed stock issuance and repurchase activities of firms.