Tobin's q Revisited: A Theoretical and Empirical Framework for Accurate Business Valuation

Piyapas Tharavanij

GATR Journals from Global Academy of Training and Research (GATR) Enterprise

Abstract: " Objective - This study revisits Tobin's q by offering a theoretically derived empirical model based on the Ohlson framework, aiming to correct the misapplications found in existing literature. Methodology/Technique - While Tobin's q has been extensively used as a measure of firm value, the traditional empirical models often assume a linear relationship with variables such as growth, leverage, and profitability. Finding - This paper demonstrates that even in a basic model, such as the Gordon growth model, this linearity does not hold. In fact, this paper shows that a linear relationship will hold only under restricted conditions and only with certain explanatory variables. Novelty - By introducing a theoretically sound equation for Tobin's q, this study highlights the limitations of current empirical methods and provides a new perspective for firm valuation research. The results contribute significantly to improving the accuracy of business valuation models, particularly in settings with varying capital structures and market dynamics. Type of Paper - Theoretical"

Keywords: Tobin's q; Ohlson model; Firm value; Valuation (search for similar items in EconPapers)
JEL-codes: G12 G19 (search for similar items in EconPapers)
Pages: 9
Date: 2024-09-30
New Economics Papers: this item is included in nep-cfn, nep-inv and nep-sea
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Published in Global Journal of Business and Social Science Review, Volume 12, Issue 3.

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Persistent link: https://EconPapers.repec.org/RePEc:gtr:gatrjs:gjbssr653

DOI: 10.35609/gjbssr.2024.12.3(3)

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