Why Does Equity Capital Flow out of High Tobin’sIndustries?

How q and cash flow affect investment without frictions: An analytic explanation

Dong Wook Lee, Hyun-Han Shin, René M Stulz and David Denis

The Review of Financial Studies, 2021, vol. 34, issue 4, 1867-1906

Abstract: High Tobin’sindustries receive more funding from capital markets than low Tobin’sindustries from 1971 to 1996. Since then, the opposite is true. The key to understanding this shift is that large firms, for whichis more a proxy for rents than investment opportunities, have become more important within industries. For these firms, repurchases but not capital expenditures increase in the cross-section with , so thatexplains the variation of repurchases more than of capital expenditures. Consequently, equity capital flows out of highindustries because for these industries stock repurchases are high and issuances are low.

Date: 2021
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