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Marginal q, Tobin’s q, Cash Flow, and Investment

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Author Info

  • Klaus Gugler

    ()
    (University of Vienna, Department of Economics)

  • Dennis C. Mueller

    ()
    (University of Vienna, Department of Economics)

  • B. Burcin Yurtoglu

    ()
    (University of Vienna, Department of Economics)

Abstract

Many studies of the determinants of investment use Tobin’s q to control for the investment opportunities of a firm. Tobin’s q roughly measures the average return on a firm’s capital anticipated by the market. More relevant for investment decisions, however, is the marginal return on capital. In this paper we estimate investment and research and development (R&D) equations using a measure of marginal q. We use marginal q to identify the existence of cash constraints and managerial discretion and as a separate explanatory variable. For a sample of 560 U.S. firms observed over the 1977–1996 period we present evidence confirming the existence of both cash constraints in some companies and managerial discretion in others.

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Bibliographic Info

Article provided by Southern Economic Association in its journal Southern Economic Journal.

Volume (Year): 70 (2004)
Issue (Month): 3 (January)
Pages: 512-531

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Handle: RePEc:sej:ancoec:v:70:3:y:2004:p:512-531

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Cited by:
  1. Klaus Gugler, 2003. "Corporate governance and investment," International Journal of the Economics of Business, Taylor & Francis Journals, vol. 10(3), pages 261-289.
  2. Madsen, Jakob B. & Carrington, Sarah J., 2012. "Credit cycles and corporate investment: Direct tests using survey data on banks’ lending practices," Journal of Macroeconomics, Elsevier, vol. 34(2), pages 429-440.
  3. Bjuggren, Per-Olof & Wiberg, Daniel, 2005. "Industry Specific Effects in Investment Performance and Valuation of Firms - Marginal q in a Stock Market Bubble," Working Paper Series in Economics and Institutions of Innovation 45, Royal Institute of Technology, CESIS - Centre of Excellence for Science and Innovation Studies.
  4. Gugler, Klaus & Mueller, Dennis C. & Weichselbaumer, Michael, 2012. "The determinants of merger waves: An international perspective," International Journal of Industrial Organization, Elsevier, vol. 30(1), pages 1-15.
  5. Klaus Gugler & Dennis C. Mueller & B. Burcin Yurtoglu, 2005. "The determinants of merger waves," Working Papers 05-15, Utrecht School of Economics.
  6. Schoder, Christian, 2013. "Credit vs. demand constraints: The determinants of US firm-level investment over the business cycles from 1977 to 2011," The North American Journal of Economics and Finance, Elsevier, vol. 26(C), pages 1-27.
  7. Goergen, M. & Renneboog, L.D.R., 2000. "Investment Policy, Internal Financing and ownership Concentration in the UK," Discussion Paper 2000-116, Tilburg University, Center for Economic Research.
  8. Johan Eklund & Johanna Palmberg & Daniel Wiberg, 2013. "Inherited corporate control and returns on investment," Small Business Economics, Springer, vol. 41(2), pages 419-431, August.

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