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Tobin's q Revisited: A Theoretical and Empirical Framework for Accurate Business Valuation

Author

Listed:
  • Piyapas Tharavanij

    (College of Management, Mahidol University, Bangkok, Thailand Author-2-Name: Author-2-Workplace-Name: Author-3-Name: Author-3-Workplace-Name: Author-4-Name: Author-4-Workplace-Name: Author-5-Name: Author-5-Workplace-Name: Author-6-Name: Author-6-Workplace-Name: Author-7-Name: Author-7-Workplace-Name: Author-8-Name: Author-8-Workplace-Name:)

Abstract

" Objective - This study revisits Tobin's q by offering a theoretically derived empirical model based on the Ohlson framework, aiming to correct the misapplications found in existing literature. Methodology/Technique - While Tobin's q has been extensively used as a measure of firm value, the traditional empirical models often assume a linear relationship with variables such as growth, leverage, and profitability. Finding - This paper demonstrates that even in a basic model, such as the Gordon growth model, this linearity does not hold. In fact, this paper shows that a linear relationship will hold only under restricted conditions and only with certain explanatory variables. Novelty - By introducing a theoretically sound equation for Tobin's q, this study highlights the limitations of current empirical methods and provides a new perspective for firm valuation research. The results contribute significantly to improving the accuracy of business valuation models, particularly in settings with varying capital structures and market dynamics. Type of Paper - Theoretical"

Suggested Citation

  • Piyapas Tharavanij, 2024. "Tobin's q Revisited: A Theoretical and Empirical Framework for Accurate Business Valuation," GATR Journals gjbssr653, Global Academy of Training and Research (GATR) Enterprise.
    • Handle: RePEc:gtr:gatrjs:gjbssr653
    DOI: https://doi.org/10.35609/gjbssr.2024.12.3(3)
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    References listed on IDEAS

    as
    1. Myers, Stewart C., 1977. "Determinants of corporate borrowing," Journal of Financial Economics, Elsevier, vol. 5(2), pages 147-175, November.
    2. repec:bla:jfinan:v:43:y:1988:i:1:p:1-19 is not listed on IDEAS
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    More about this item

    Keywords

    Tobin's q; Ohlson model; Firm value; Valuation;
    All these keywords.

    JEL classification:

    • G12 - Financial Economics - - General Financial Markets - - - Asset Pricing; Trading Volume; Bond Interest Rates
    • G19 - Financial Economics - - General Financial Markets - - - Other

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