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Why Does Equity Capital Flow Out of High Tobin's q Industries?

Author

Listed:
  • Lee, Dong Wook

    (Korea U)

  • Shin, Hyun-Han

    (Yonsei U)

  • Stulz, Rene M.

    (Ohio State U and European Corporate Governance Institute)

Abstract

High Tobin's q industries receive more funding from capital markets than low Tobin's q industries from 1971 to 1996. Since then, the opposite is true. The key to understanding this shift is that large firms for which q is more a proxy for rents than for investment opportunities have become more important within industries. For these firms, repurchases increase with q but capital expenditures do not, so that q explains more the variation of repurchases than of capital expenditures. Consequently, equity capital flows out of high q industries because, for these industries, stock repurchases are high and issuances are low.

Suggested Citation

  • Lee, Dong Wook & Shin, Hyun-Han & Stulz, Rene M., 2020. "Why Does Equity Capital Flow Out of High Tobin's q Industries?," Working Paper Series 2020-02, Ohio State University, Charles A. Dice Center for Research in Financial Economics.
  • Handle: RePEc:ecl:ohidic:2020-02
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    JEL classification:

    • E22 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Investment; Capital; Intangible Capital; Capacity
    • E44 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Financial Markets and the Macroeconomy
    • G31 - Financial Economics - - Corporate Finance and Governance - - - Capital Budgeting; Fixed Investment and Inventory Studies
    • G35 - Financial Economics - - Corporate Finance and Governance - - - Payout Policy
    • L16 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Industrial Organization and Macroeconomics; Macroeconomic Industrial Structure

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