The Comparative Performance of Q-type and Dynamic Models of Firm Investment: Empirical Evidence from the UK

Eleni Angelopoulou

No 27, Working Papers from Bank of Greece

Abstract: In this paper two models of investment stemming from the neoclassical theory are derived in a unifying framework. The Q type models view the stock market valuation of a firm as an all-encompassing variable determining its investment decisions, while the Euler equation for investment highlights the dynamic nature of firms’ decisionmaking. A sample of 779 UK manufacturing companies listed in the London Stock Exchange in the period 1971-1990 is used to compare the empirical fit of the two different models of investment. Despite a number of difficulties, the Q model appears to be empirically superior delivering the desirable consistency between theory and data.

Keywords: Empirical investment models; Euler equation for investment; Q model (search for similar items in EconPapers)
JEL-codes: C23 D92 E22 (search for similar items in EconPapers)
Pages: 47 pages
Date: 2005-09
New Economics Papers: this item is included in nep-mac
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (6)

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