Q, Cash Flow and Investment: An Econometric Critique
AbstractThe effect of measurement error on estimates of the Q and cash flow model of investment is investigated. Two sources of error are considered: expensing of research and development expenditures and the failure to separate out that component of cash flow which relaxes financing constraints. We apply random-effects and instrumental variables estimators to remedy these sources of error. When the model is properly identified, Q makes a significant contribution. However, the contribution of unexpected cash flow is not as meaningful as theory would predict, which might be explained by the relatively large size of the firms in the sample.
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Bibliographic InfoPaper provided by Boston College Department of Economics in its series Boston College Working Papers in Economics with number 332..
Length: 24 pages
Date of creation: 01 Jan 1996
Date of revision:
Publication status: published, Review of Quantitative Finance and Accounting, 1999 (12:35-47).
Contact details of provider:
Postal: Boston College, 140 Commonwealth Avenue, Chestnut Hill MA 02467 USA
Web page: http://fmwww.bc.edu/EC/
More information through EDIRC
Tobin's Q; investment; measurement error; asch flow; R&D expenditure;
Other versions of this item:
- Baum, Christopher F & Thies, Clifford F, 1999. " Q, Cash Flow and Investment: An Econometric Critique," Review of Quantitative Finance and Accounting, Springer, vol. 12(1), pages 35-47, January.
- 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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