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Will Any q Do?

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  • Peter J. DaDalt
  • Jeffrey R. Donaldson
  • Jacqueline L. Garner

Abstract

We find that the relative levels of computationally costly q estimators and simple q estimators, when used as continuous variables, are affected by variations in many firm financial characteristics. In contrast, when the estimators are used as dichotomous variables, they classify the vast majority of firms identically with respect to the unit q breakpoint. Finally, we find that the computationally costly approach may induce sample‐selection bias as a result of data unavailability. Our results suggest that the simple approach is preferable except when extreme precision of the q estimate is of paramount importance and sample‐selection bias is not likely to be an issue.

Suggested Citation

  • Peter J. DaDalt & Jeffrey R. Donaldson & Jacqueline L. Garner, 2003. "Will Any q Do?," Journal of Financial Research, Southern Finance Association;Southwestern Finance Association, vol. 26(4), pages 535-551, December.
    • Handle: RePEc:bla:jfnres:v:26:y:2003:i:4:p:535-551
    DOI: 10.1111/1475-6803.00073
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    References listed on IDEAS

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    1. Bronwyn H. Hall, 1990. "The Manufacturing Sector Master File: 1959-1987," NBER Working Papers 3366, National Bureau of Economic Research, Inc.
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    Cited by:

    1. Naoto Jinji & Xingyuan Zhang & Shoji Haruna, 2022. "Does Tobin’s q Matter for a Firm’s Choice of Globalization Mode?," Advances in Japanese Business and Economics, in: Deep Integration, Global Firms, and Technology Spillovers, chapter 0, pages 49-69, Springer.
    2. Gleason, Katherine I. & Klock, Mark, 2006. "Intangible capital in the pharmaceutical and chemical industry," The Quarterly Review of Economics and Finance, Elsevier, vol. 46(2), pages 300-314, May.
    3. Ricardo Leal & André Carvalhal-da-Silva, 2005. "Corporate Governance and Value in Brazil (and in Chile)," Research Department Publications 3208, Inter-American Development Bank, Research Department.
    4. Hyunju Shin & Alexander E. Ellinger & Helenka Hopkins Nolan & Tyler D. DeCoster & Forrest Lane, 2018. "An Assessment of the Association Between Renewable Energy Utilization and Firm Financial Performance," Journal of Business Ethics, Springer, vol. 151(4), pages 1121-1138, September.
    5. Tang, Haodan & Fang, Senhui & Jiang, Dianchun, 2022. "The market value effect of digital mergers and acquisitions: Evidence from China," Economic Modelling, Elsevier, vol. 116(C).
    6. Kapitsinas, Spyridon, 2008. "The Impact of Derivatives Usage on Firm Value: Evidence from Greece," MPRA Paper 10947, University Library of Munich, Germany.
    7. Sandner, Philipp G. & Block, Joern, 2011. "The market value of R&D, patents, and trademarks," Research Policy, Elsevier, vol. 40(7), pages 969-985, September.
    8. Korkeamaki, Timo & Moore, William T., 2004. "Capital investment timing and convertible debt financing," International Review of Economics & Finance, Elsevier, vol. 13(1), pages 75-85.
    9. André Luiz Carvalhal da Silva & Ricardo Pereira Câmara Leal, 2005. "Corporate Governance Index, Firm Valuation and Performance in Brazil," Brazilian Review of Finance, Brazilian Society of Finance, vol. 3(1), pages 1-18.
    10. Ricardo Leal & André Carvalhal-da-Silva, 2005. "Conducción y valor empresarial en Brasil (y Chile)," Research Department Publications 3209, Inter-American Development Bank, Research Department.
    11. Jinji, Naoto & Zhang, Xingyuan & Haruna, Shoji, 2019. "Does a firm with higher Tobin’s q prefer foreign direct investment to foreign outsourcing?," The North American Journal of Economics and Finance, Elsevier, vol. 50(C).

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