In this paper I analyze the relationships among investment, q, and cash flow in a tractable stochastic model in which … operating profit of capital, I extend the model to include measurement error and analyze the cash-flow coefficient in … regressions of investment on q and cash flow. In empirical studies, the estimated cash-flow coefficient is generally positive and …

strongly to cash flow. Paralleling these findings is the disappointing performance of the q theory of investment: even though …Many recent empirical investment studies have found that the investment of financially constrained firms responds … marginal q should summarize the effects of all factors relevant to the investment decision, cash flow still matters. We examine …

We study the time-varying effects of Tobin's q and cash flow on investment dynamics in the USA using a vector … variation over time of the response of investment to shocks in both variables. The time-varying sensitivity of investment to a … show that, although Tobin's q and cash flow are complementary sources of information for investment decisions, their …