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A Modified Version of the Lewellen and Badrinath Measure of Tobin's Q

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  • Darrell E. Lee
  • James G. Tompkins
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    Abstract

    Lewellen and Badrinath (1997) propose a superior method of measuring Tobin's Q. Unfortunately, their method is prone to a high percentage of missing observations and results in selecting samples of larger and more mature firms with lower Q statistics. We propose a slight modification that preserves the appeal of their method, yet almost doubles the sample size, avoids sampling problems, and is statistically indistinguishable from their Q measure. In addition, we clarify a step in the Lewellen and Badrinath Q calculation, which was inadvertently omitted in their explanation, and, if left undone, can result in downward-biased measures of Q.

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    Bibliographic Info

    Article provided by Financial Management Association in its journal Financial Management.

    Volume (Year): 28 (1999)
    Issue (Month): 1 (Spring)
    Pages:

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    Handle: RePEc:fma:fmanag:lee99

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    Cited by:
    1. Nelson, James M. & Moffitt, Jacquelyn Sue & Affleck-Graves, John, 2005. "The impact of hedging on the market value of equity," Journal of Corporate Finance, Elsevier, vol. 11(5), pages 851-881, October.
    2. Fernando, Chitru S. & Gatchev, Vladimir A. & Spindt, Paul A., 2012. "Institutional ownership, analyst following, and share prices," Journal of Banking & Finance, Elsevier, vol. 36(8), pages 2175-2189.
    3. Missonier-Piera, Franck, 2007. "Motives for fixed-asset revaluation: An empirical analysis with Swiss data," The International Journal of Accounting, Elsevier, vol. 42(2), pages 186-205.
    4. Panayotis Dessyllas & Alan Hughes, 2005. "The Revealed Preferences of High Technology Acquirers: An Analysis of the Characteristics of their Targets," Industrial Organization 0507009, EconWPA.
    5. Panayotis Dessyllas & Alan Hughes, 2005. "The revealed preferences of high technology acquirers: an analysis of the characteristics of their targets," ESRC Centre for Business Research - Working Papers wp306, ESRC Centre for Business Research.
    6. Erden, Zeynep & Klang, David & Sydler, Renato & von Krogh, Georg, 2014. "Knowledge-flows and firm performance," Journal of Business Research, Elsevier, vol. 67(1), pages 2777-2785.
    7. Christophe, Stephen E. & Lee, Hun, 2005. "What matters about internationalization: a market-based assessment," Journal of Business Research, Elsevier, vol. 58(5), pages 636-643, May.

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