The relationship of firm growth and Q with multiple capital goods: theory and evidence from panel data on Japanese firms

Fumio Hayashi and Tohru Inoue

No 13, Discussion Paper / Institute for Empirical Macroeconomics from Federal Reserve Bank of Minneapolis

Abstract: We develop a Q model of investment with multiple capital goods that delivers a one-to-one relation between the growth rate of the capital aggregate and the stock market-based Q. We estimate the growth-Q relation using a panel of over six hundred Japanese manufacturing firms taking into account the endogeneity of Q. Identification is achieved by combining the theoretical structure of the Q model and an assumed serial correlation structure of the technology shock that comprises the error term in the growth-Q relation. The Q variable is significantly related to firm growth. Much, but not all, of the apparent explanatory power of cash flow disappears if its endogeneity is corrected for. The estimated Q coefficient is not implausibly small if the growth rate of the capital aggregate contains measurement error.

Keywords: Japan; Business enterprises - Japan (search for similar items in EconPapers)
Date: 1989
References: Add references at CitEc
Citations: View citations in EconPapers (7)

Downloads: (external link)
https://www.minneapolisfed.org/research/dp/dp13.pdf Full Text (application/pdf)

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:fip:fedmem:13

Ordering information: This working paper can be ordered from

Access Statistics for this paper

More papers in Discussion Paper / Institute for Empirical Macroeconomics from Federal Reserve Bank of Minneapolis Contact information at EDIRC.
Bibliographic data for series maintained by Jannelle Ruswick ( this e-mail address is bad, please contact ).