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Industry Specific Effects in Investment Performance and Valuation of Firms - Marginal q in a Stock Market Bubble

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Author Info

  • Bjuggren, Per-Olof

    ()
    (Jönköping International Business School, JIBS)

  • Wiberg, Daniel

    ()
    (Jönköping International Business School, JIBS)

Abstract

A necessary criterion for a performance measure in corporate governance is the degree to which it mirrors how well the management succeeds in maximizing firm value. Such a performance measure is marginal q which links changes in firm value to the investments decided by the management. Empirical studies of investment and performance based on marginal q have demonstrated the usefulness of this measure. Most research however, has mainly focused on long-term performance. This paper takes a short-term perspective and, based on the marginal q-theory, considers how market values change in the extreme stock price cycle of a stock market bubble. We find an anomaly in form of a new industry specific effect that, in addition to investment, explains changes in firm value.

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Bibliographic Info

Paper provided by Royal Institute of Technology, CESIS - Centre of Excellence for Science and Innovation Studies in its series Working Paper Series in Economics and Institutions of Innovation with number 45.

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Length: 17 pages
Date of creation: 28 Dec 2005
Date of revision:
Handle: RePEc:hhs:cesisp:0045

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Postal: CESIS - Centre of Excellence for Science and Innovation Studies, Royal Institute of Technology, SE-100 44 Stockholm, Sweden
Phone: +46 8 790 95 63
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Keywords: Marginal q; Investment; Stock bubbles; Different industries;

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References

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  1. Gugler, Klaus & Yurtoglu, Burcin B., 2003. "Average q, marginal q, and the relation between ownership and performance," Economics Letters, Elsevier, vol. 78(3), pages 379-384, March.
  2. Gugler, Klaus & Mueller, Dennis C & Yurtoglu, B Burcin, 2004. "Corporate Governance and the Returns on Investment," Journal of Law and Economics, University of Chicago Press, vol. 47(2), pages 589-633, October.
  3. Robert J. Shiller, 2001. "Bubbles, Human Judgment, and Expert Opinion," Cowles Foundation Discussion Papers 1303, Cowles Foundation for Research in Economics, Yale University.
  4. Hayashi, Fumio, 1982. "Tobin's Marginal q and Average q: A Neoclassical Interpretation," Econometrica, Econometric Society, vol. 50(1), pages 213-24, January.
  5. Jensen, Michael C. & Meckling, William H., 1976. "Theory of the firm: Managerial behavior, agency costs and ownership structure," Journal of Financial Economics, Elsevier, vol. 3(4), pages 305-360, October.
  6. Tobin, James, 1969. "A General Equilibrium Approach to Monetary Theory," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 1(1), pages 15-29, February.
  7. Shiller, Robert J, 1981. "Do Stock Prices Move Too Much to be Justified by Subsequent Changes in Dividends?," American Economic Review, American Economic Association, vol. 71(3), pages 421-36, June.
  8. Shleifer, Andrei, 2000. "Inefficient Markets: An Introduction to Behavioral Finance," OUP Catalogue, Oxford University Press, number 9780198292272.
  9. Klaus Gugler & Dennis C. Mueller & B. Burcin Yurtoglu, 2004. "Marginal q, Tobin’s q, Cash Flow, and Investment," Southern Economic Journal, Southern Economic Association, vol. 70(3), pages 512-531, January.
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Cited by:
  1. Eklund, Johan E, 2009. "One Share – One Vote: new evidence from the Nordic countries," Working Paper Series in Economics and Institutions of Innovation 168, Royal Institute of Technology, CESIS - Centre of Excellence for Science and Innovation Studies.
  2. Per-Olof Bjuggren & Andreas Högberg, 2011. "Legal Origin and Size Effects in European Listed Firms," ERSA conference papers ersa10p1488, European Regional Science Association.
  3. Eklund, Johan E., 2007. "Corporate Governance and Investments in Scandinavia - ownership concentration and dual-class equity structure," Working Paper Series in Economics and Institutions of Innovation 98, Royal Institute of Technology, CESIS - Centre of Excellence for Science and Innovation Studies.
  4. Bjuggren, Per-Olof & Högberg, Andreas, 2012. "Legal Origin and Firm Size Effects Around the World," Ratio Working Papers 191, The Ratio Institute.
  5. Bjuggren, Per-Olof & Eklund, Johan & Wiberg, Daniel, 2008. "Institutional Ownership and the Returns on Investment," Ratio Working Papers 128, The Ratio Institute.

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