Will Any q Do?

Peter J. DaDalt, Jeffrey R. Donaldson and Jacqueline L. Garner

Journal of Financial Research, 2003, vol. 26, issue 4, 535-551

Abstract: We find that the relative levels of computationally costly q estimators and simple q estimators, when used as continuous variables, are affected by variations in many firm financial characteristics. In contrast, when the estimators are used as dichotomous variables, they classify the vast majority of firms identically with respect to the unit q breakpoint. Finally, we find that the computationally costly approach may induce sample‐selection bias as a result of data unavailability. Our results suggest that the simple approach is preferable except when extreme precision of the q estimate is of paramount importance and sample‐selection bias is not likely to be an issue.

Date: 2003
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