Premium
A re‐examination of the q theory of investment using u.s. firm data
Author(s) -
Schaller Huntley
Publication year - 1990
Publication title -
journal of applied econometrics
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 2.878
H-Index - 99
eISSN - 1099-1255
pISSN - 0883-7252
DOI - 10.1002/jae.3950050402
Subject(s) - economics , spurious relationship , imperfect competition , investment (military) , disappointment , econometrics , competition (biology) , aggregate (composite) , imperfect , aggregate data , empirical evidence , perfect information , microeconomics , mathematics , statistics , psychology , social psychology , ecology , linguistics , materials science , philosophy , epistemology , politics , political science , law , composite material , biology
Investment models based on Tobin's q are theoretically appealing, but they have been an empirical disappointment when applied to aggregate time‐series data. This paper explores two potential explanations for the poor empirical performance of q investment models, problems arising from aggregation and imperfect competition. The results suggest that aggregation is responsible for spurious evidence of dynamic misspecification and at least partially responsible for an upward bias in estimated adjustment costs. The evidence also suggests that imperfect competition in output markets may have an effect on the investment behaviour of some firms.