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Tobin's q and firm performance: MCDM and clustering-based approach for Indian companies

Author

Listed:
  • Roma Kumari
  • Tamal Datta Chaudhuri
  • Indranil Ghosh

Abstract

Tobin's q has been interpreted as a forward looking indicator of firm performance. In this paper, we use it as a lead indicator in period t to find out its effect on firm performance in period t + 2. The conceptual framework used in the paper has Tobin's q as the indicator of expected firm performance which is manifested through asset turnover ratio, gross profit margin, enterprise value/EBITDA, incremental output capital ratio, returns on retained earnings and free cash flow. Further, we do a size class analysis for the relationships. For a sample set of Indian companies, we seek answers to whether did Tobin's q could predict business efficiency, business effectiveness, innovativeness and sustainability. After identifying the partial effects, to improve our understanding of the relationship between the realised variables and Tobin's q in one go, we apply a clustering driven multi criteria decision-making model on the realised variables.

Suggested Citation

  • Roma Kumari & Tamal Datta Chaudhuri & Indranil Ghosh, 2024. "Tobin's q and firm performance: MCDM and clustering-based approach for Indian companies," International Journal of Business Information Systems, Inderscience Enterprises Ltd, vol. 45(4), pages 564-590.
    • Handle: RePEc:ids:ijbisy:v:45:y:2024:i:4:p:564-590
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