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Does the q theory of investment work well in China?

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  • Chen, Te-Feng
  • Kwok, Wing Chun
  • Wong, George

Abstract

Evidence from both the US and Chinese firm samples indicate that the R2 coefficient of the investment-q regression increases as the within-firm volatility of q increases and is larger for research-intensive industries. q explains more variations of investments in the US than in China. We find that the relatively low R2 coefficient in China can be explained by the heavy presence of state-owned enterprises and the larger measurement error of q in China.

Suggested Citation

  • Chen, Te-Feng & Kwok, Wing Chun & Wong, George, 2021. "Does the q theory of investment work well in China?," Pacific-Basin Finance Journal, Elsevier, vol. 68(C).
    • Handle: RePEc:eee:pacfin:v:68:y:2021:i:c:s0927538x21001025
    DOI: 10.1016/j.pacfin.2021.101595
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    References listed on IDEAS

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    1. Lin, Justin Yifu & Cai, Fang & Li, Zhou, 1998. "Competition, Policy Burdens, and State-Owned Enterprise Reform," American Economic Review, American Economic Association, vol. 88(2), pages 422-427, May.
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    10. Peters, Ryan H. & Taylor, Lucian A., 2017. "Intangible capital and the investment-q relation," Journal of Financial Economics, Elsevier, vol. 123(2), pages 251-272.
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    Cited by:

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    4. Wei Yu & Jianjun Jia & Ying Zheng, 2023. "Political uncertainty and corporate working capital in China," Review of Quantitative Finance and Accounting, Springer, vol. 61(3), pages 927-966, October.

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    Keywords

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    JEL classification:

    • E22 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Investment; Capital; Intangible Capital; Capacity
    • G31 - Financial Economics - - Corporate Finance and Governance - - - Capital Budgeting; Fixed Investment and Inventory Studies
    • O33 - Economic Development, Innovation, Technological Change, and Growth - - Innovation; Research and Development; Technological Change; Intellectual Property Rights - - - Technological Change: Choices and Consequences; Diffusion Processes

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