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Tobin's q and overinvestment

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  • Lawrance Gordon
  • Mary Myers

Abstract

The objective of the research reported in this paper is to examine the claim that, for purposes of identifying overinvesting firms, an average q of less than unity is a valid proxy for a marginal q of less than unity. The empirical evidence provided supports, although does not prove, this claim. Hence, studies which utilize an average q of less than unity to identify overinvesting firms appear to operating on solid ground.

Suggested Citation

  • Lawrance Gordon & Mary Myers, 1998. "Tobin's q and overinvestment," Applied Economics Letters, Taylor & Francis Journals, vol. 5(1), pages 1-4.
    • Handle: RePEc:taf:apeclt:v:5:y:1998:i:1:p:1-4
    DOI: 10.1080/758540116
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    References listed on IDEAS

    as
    1. Galeotti, Marzio, 1988. "Tobin's Marginal 'q' and Tests of the Firm's Dynamic Equilibrium," Journal of Applied Econometrics, John Wiley & Sons, Ltd., vol. 3(4), pages 267-277, October-D.
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    4. Lang, Larry H. P. & Stulz, ReneM. & Walkling, Ralph A., 1989. "Managerial performance, Tobin's Q, and the gains from successful tender offers," Journal of Financial Economics, Elsevier, vol. 24(1), pages 137-154, September.
    5. Lang, Larry H. P. & Stulz, ReneM. & Walkling, Ralph A., 1991. "A test of the free cash flow hypothesis*1: The case of bidder returns," Journal of Financial Economics, Elsevier, vol. 29(2), pages 315-335, October.
    6. Morck, Randall & Shleifer, Andrei & Vishny, Robert W., 1988. "Management ownership and market valuation," Scholarly Articles 29407535, Harvard University Department of Economics.
    7. Hasbrouck, Joel, 1985. "The characteristics of takeover targets and other measures," Journal of Banking & Finance, Elsevier, vol. 9(3), pages 351-362, September.
    8. Hayashi, Fumio, 1982. "Tobin's Marginal q and Average q: A Neoclassical Interpretation," Econometrica, Econometric Society, vol. 50(1), pages 213-224, January.
    9. Morck, Randall & Shleifer, Andrei & Vishny, Robert W., 1988. "Management ownership and market valuation : An empirical analysis," Journal of Financial Economics, Elsevier, vol. 20(1-2), pages 293-315, January.
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