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We show that Tobin's q, as proxied by the ratio of the firm's market value to its book value, increases with the firm's systematic equity risk and falls with the firm's unsystematic equity risk. Further, an increase in the firm's total equity risk is associated with a fall in q. The negative...
Persistent link: https://www.econbiz.de/10012470942
develop a theory of the mechanism, provide empirical evidence, evaluate the ability of the quantitative theory to match the …
Persistent link: https://www.econbiz.de/10013210051
's q theory of investment. As Tobin has explained, aggregate investment can be expected to depend in a stable way on q, the … is that it is rooted in a microeconomic theory that integrates the interests of the corporation and its shareholders …
Persistent link: https://www.econbiz.de/10012478521
This paper proposes a simple homogeneous dynamic model of investment and corporate risk management for a financially constrained firm. Following Froot, Scharfstein, and Stein (1993), we define a corporation's risk management as the coordination of investment and financing decisions. In our...
Persistent link: https://www.econbiz.de/10012463803
There exist two approaches in the literature concerning the multinational firm's mode choice for foreign production between an owned subsidiary and a licensing contract. One approach considers environments where the firm is transferring primarily knowledge-based assets. An important assumption...
Persistent link: https://www.econbiz.de/10012464132
I construct a neoclassical, Q-theoretical foundation for time-varying expected returns in connection with corporate policies and events. Under certain conditions, stock return equals investment return, which is directly tied with firm characteristics. This single equation is shown analytically...
Persistent link: https://www.econbiz.de/10012467361
The Q-theory of investment says that a firm's investment rate should rise with its Q. We argue here that this theory …
Persistent link: https://www.econbiz.de/10012469975
Most trade-and-growth studies focus on the growth effects of autarky-to-free-trade changes, rather than those of incremental liberalizations. This paper characterizes how the strength and sign of openness-and-growth links depend upon the nature and level of trade barriers. For most types of...
Persistent link: https://www.econbiz.de/10012472328
In this paper I analyze the relationships among investment, q, and cash flow in a tractable stochastic model in which marginal q and average q are identically equal. After analyzing the impact of changes in the distribution of the marginal operating profit of capital, I extend the model to...
Persistent link: https://www.econbiz.de/10012457120
prior year's performance, but for reasons outside of q-theory---it does so by including a fundamental momentum factor, i …
Persistent link: https://www.econbiz.de/10012457681