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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. 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.
  2. Goergen, Marc & Renneboog, Luc, 2001. "Investment policy, internal financing and ownership concentration in the UK," Journal of Corporate Finance, Elsevier, vol. 7(3), pages 257-284, September.
  3. Klaus Gugler & Dennis C. Mueller & B. Burcin Yurtoglu, 2005. "The determinants of merger waves," Working Papers 05-15, Utrecht School of Economics.
  4. Mahlich, Jörg C. & Roediger-Schluga, Thomas, 2006. "The Determinants of Pharmaceutical R&D Expenditures: Evidence from Japan," UNU-MERIT Working Paper Series 015, United Nations University, Maastricht Economic and social Research and training centre on Innovation and Technology.
  5. Klaus Gugler, 2003. "Corporate governance and investment," International Journal of the Economics of Business, Taylor and Francis Journals, vol. 10(3), pages 261-289.

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