Investment, Tobin's q, and Interest Rates

Xiaoji Lin, Chong Wang, Neng Wang and Jinqiang Yang

No 19327, NBER Working Papers from National Bureau of Economic Research, Inc

Abstract: We study the impact of stochastic interest rates and capital illiquidity on investment and firm value by incorporating a widely used arbitrage-free term structure model of interest rates into a standard q theoretic framework. Our generalized q model informs us to use corporate credit-risk information to predict investments when empirical measurement issues of Tobin’s average q are significant (e.g., equity is much more likely to be mis-priced than debt), as in Philippon (2009). We find, consistent with our theory, that credit spreads and bond q have significant predictive powers on micro-level and aggregate investments corroborating the recent empirical work of Gilchrist and Zakrajšek (2012). We also show that the quantitative effects of the stochastic interest rates and capital illiquidity on investment, Tobin’s average q, the duration and user cost of capital, and the value of growth opportunities are substantial. These findings are particularly important in today’s low interest rate environment.

JEL-codes: E2 (search for similar items in EconPapers)
Date: 2013-08
Note: AP EFG
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (1)

Published as Xiaoji Lin & Chong Wang & Neng Wang & Jinqiang Yang, 2018. "Investment, Tobin’s q, and interest rates," Journal of Financial Economics, vol 130(3), pages 620-640.

Downloads: (external link)
http://www.nber.org/papers/w19327.pdf (application/pdf)

Related works:
Journal Article: Investment, Tobin’s q, and interest rates (2018)
Working Paper: Investment, Tobin's q, and Interest Rates (2016)
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:nbr:nberwo:19327

Ordering information: This working paper can be ordered from
http://www.nber.org/papers/w19327

Access Statistics for this paper

More papers in NBER Working Papers from National Bureau of Economic Research, Inc National Bureau of Economic Research, 1050 Massachusetts Avenue Cambridge, MA 02138, U.S.A.. Contact information at EDIRC.
Bibliographic data for series maintained by ().