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The Relation between Firm Growth and Q with Multiple Capital Goods: Theory and Evidence from Panel Data on Japanese Firms

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  • Hayashi, Fumio
  • Inoue, Tohru

Abstract

The authors derive, from a model of investment with multiple capital goods, a one-to-one relation between the growth rate of the capital aggregate and the stock-market-based Q. The authors estimate the growth-Q relation using a panel of Japanese manufacturing firms taking into account the endogeneity of Q. For early years of their sample, cash flow has significant explanatory power over and above Q. The estimated Q coefficient implies that the adjustment cost is less than a half of gross profits net of the adjustment costs. Copyright 1991 by The Econometric Society.

Suggested Citation

  • Hayashi, Fumio & Inoue, Tohru, 1991. "The Relation between Firm Growth and Q with Multiple Capital Goods: Theory and Evidence from Panel Data on Japanese Firms," Econometrica, Econometric Society, vol. 59(3), pages 731-753, May.
  • Handle: RePEc:ecm:emetrp:v:59:y:1991:i:3:p:731-53
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    References listed on IDEAS

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    1. Lucas, Robert E, Jr & Prescott, Edward C, 1971. "Investment Under Uncertainty," Econometrica, Econometric Society, vol. 39(5), pages 659-681, September.
    2. Hansen, Lars Peter, 1982. "Large Sample Properties of Generalized Method of Moments Estimators," Econometrica, Econometric Society, vol. 50(4), pages 1029-1054, July.
    3. Benveniste, L M & Scheinkman, J A, 1979. "On the Differentiability of the Value Function in Dynamic Models of Economics," Econometrica, Econometric Society, vol. 47(3), pages 727-732, May.
    4. Epstein, Larry G, 1983. " Aggregating Quasi-Fixed Factors," Scandinavian Journal of Economics, Wiley Blackwell, vol. 85(2), pages 191-205.
    5. Takeo Hoshi & Anil Kashyap & David Scharfstein, 1990. "Bank Monitoring and Investment: Evidence from the Changing Structure of Japanese Corporate Banking Relationships," NBER Chapters,in: Asymmetric Information, Corporate Finance, and Investment, pages 105-126 National Bureau of Economic Research, Inc.
    6. Takeo Hoshi & Anil K. Kashyap & David Scharfstein, 1989. "Bank monitoring and investment: evidence from the changing structure of Japanese corporate banking relations," Finance and Economics Discussion Series 86, Board of Governors of the Federal Reserve System (U.S.).
    7. Schiantarelli, F. & Georgoutsos, D., 1990. "Monopolistic competition and the Q theory of investment," European Economic Review, Elsevier, vol. 34(5), pages 1061-1078, July.
    8. Fumio Hayashi, 1991. "Taxes and Corporate Investment in Japanese Manufacturing," NBER Chapters,in: Productivity Growth in Japan and the United States, pages 295-316 National Bureau of Economic Research, Inc.
    9. Hayashi, Fumio, 1982. "Tobin's Marginal q and Average q: A Neoclassical Interpretation," Econometrica, Econometric Society, vol. 50(1), pages 213-224, January.
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