Cost of capital and US investment: Does financing matter after all?

Banu Simmons-Süer

The Quarterly Review of Economics and Finance, 2016, vol. 60, issue C, 86-93

Abstract: This paper attempts to explain what drives the US gross fixed capital formation at the aggregate level. The focus of this paper is the role of the cost of capital and the importance of the type of financing. While the bulk of the investment literature concentrates on company level Tobin's q to explain company level investment, we calculate an aggregate Tobin's q for the US non-farm, non-financial corporate sector to analyze how the cost of capital, dividends and leverage affect the relationship between investment and ‘q’. Our findings challenge the concept that the type of financing of new capital is irrelevant to the investment process.

Keywords: Investment; Tobin's q; Capital costs (search for similar items in EconPapers)
JEL-codes: C1 E2 G1 (search for similar items in EconPapers)
Date: 2016
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Persistent link: https://EconPapers.repec.org/RePEc:eee:quaeco:v:60:y:2016:i:c:p:86-93

DOI: 10.1016/j.qref.2015.11.008

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