Marginal Q, Tomin´s Q, Cash Flow and Investment

Klaus Gugler (), Denni C. Mueller () and B. Burcin Yurtoglu ()
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Klaus Gugler: https://econ.univie.ac.at
Denni C. Mueller: https://econ.univie.ac.at
B. Burcin Yurtoglu: https://econ.univie.ac.at

Vienna Economics Papers from University of Vienna, Department of Economics

Abstract: Many studies of the determinants of investment use Tobin’s q to control for the investment opportunities of a firm. Tobin’s q roughly measures the average return on a firm’s capital anticipated by the market. More relevant for investment decisions, however, is the marginal return on capital. In this paper we estimate investment and R&D equations using a measure of marginal q. We use marginal q to identify the existence of cash constraints and managerial discretion, and as a separate explanatory variable. For a sample of 562 U.S. firms observed over the 1977-1996 period we present evidence confirming the existence of both cash constraints in some companies and managerial discretion in others.

JEL-codes: G31 G32 L21 O16 (search for similar items in EconPapers)
Date: 2000-05
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Persistent link: https://EconPapers.repec.org/RePEc:vie:viennp:vie0002

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