Why Does Equity Capital Flow Out of High Tobin's q Industries?

Dong Wook Lee, Hyun-Han Shin and Rene M. Stulz
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Dong Wook Lee: Korea U
Hyun-Han Shin: Yonsei U
Rene M. Stulz: Ohio State U and European Corporate Governance Institute

Working Paper Series from Ohio State University, Charles A. Dice Center for Research in Financial Economics

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

JEL-codes: E22 E44 G31 G35 L16 (search for similar items in EconPapers)
Date: 2020-02
New Economics Papers: this item is included in nep-cfn and nep-mac
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Persistent link: https://EconPapers.repec.org/RePEc:ecl:ohidic:2020-02

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