Q, Cash Flow and Investment: An Econometric Critique
AbstractThe effects of measurement and specification error on estimates of the Q and cash flow model of investment are investigated. Two sources of error are considered: expensing of R&D expenditures and failing to identify that component of cash flow which relaxes financing constraints. We apply random-effects and instrumental variables estimators to a model that addresses these sources of error. We find that: (1) the capitalization of R&D strengthens the explanatory power of the model; (2) expected and unexpected components of cash flow have different effects; and (3) the effects of Q are much more evident in firms facing low costs of external finance. Copyright 1999 by Kluwer Academic Publishers
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Bibliographic InfoArticle provided by Springer in its journal Review of Quantitative Finance and Accounting.
Volume (Year): 12 (1999)
Issue (Month): 1 (January)
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Web page: http://springerlink.metapress.com/link.asp?id=102990
Other versions of this item:
- Christopher F. Baum & Clifford F. Thies, 1996. "Q, Cash Flow and Investment: An Econometric Critique," Boston College Working Papers in Economics 332., Boston College Department of Economics.
- E22 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Capital; Investment; Capacity
- E44 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Financial Markets and the Macroeconomy
- C21 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Cross-Sectional Models; Spatial Models; Treatment Effect Models
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