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The Relation between Firm Growth and Q with Multiple Capital Goods: Theory and Evidence from Panel Data on Japanese Firms

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Hayashi, Fumio
Inoue, Tohru

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Abstract

The authors derive, from a model of investment with multiple capital goods, a one-to-one relation between the growth rate of the capital aggregate and the stock-market-based Q. The authors estimate the growth-Q relation using a panel of Japanese manufacturing firms taking into account the endogeneity of Q. For early years of their sample, cash flow has significant explanatory power over and above Q. The estimated Q coefficient implies that the adjustment cost is less than a half of gross profits net of the adjustment costs. Copyright 1991 by The Econometric Society.

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Article provided by Econometric Society in its journal Econometrica.

Volume (Year): 59 (1991)
Issue (Month): 3 (May)
Pages: 731-53
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Handle: RePEc:ecm:emetrp:v:59:y:1991:i:3:p:731-53

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Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
  1. Lucas, Robert E, Jr & Prescott, Edward C, 1971. "Investment Under Uncertainty," Econometrica, Econometric Society, vol. 39(5), pages 659-81, September. [Downloadable!] (restricted)
  2. Benveniste, L M & Scheinkman, J A, 1979. "On the Differentiability of the Value Function in Dynamic Models of Economics," Econometrica, Econometric Society, vol. 47(3), pages 727-32, May. [Downloadable!] (restricted)
  3. Schiantarelli, F. & Georgoutsos, D., 1990. "Monopolistic competition and the Q theory of investment," European Economic Review, Elsevier, vol. 34(5), pages 1061-1078, July. [Downloadable!] (restricted)
  4. Takeo Hoshi & Anil Kashyap & David Scharfstein, 1989. "Bank Monitoring and Investment: Evidence from the Changing Structure of Japanese Corporate Banking Relationships," NBER Working Papers 3079, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
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  5. Fumio Hayashi, 1985. "Taxes and Corporate Investment in Japanese Manufacturing," NBER Working Papers 1753, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
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  6. Takeo Hoshi & Anil Kashyap & David Scharfstein, 1989. "Bank monitoring and investment: evidence from the changing structure of Japanese corporate banking relations," Finance and Economics Discussion Series 86, Board of Governors of the Federal Reserve System (U.S.).
  7. Epstein, Larry G, 1983. " Aggregating Quasi-Fixed Factors," Scandinavian Journal of Economics, Blackwell Publishing, vol. 85(2), pages 191-205.
  8. Hayashi, Fumio, 1982. "Tobin's Marginal q and Average q: A Neoclassical Interpretation," Econometrica, Econometric Society, vol. 50(1), pages 213-24, January. [Downloadable!] (restricted)
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