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Investment, Tobin's Q, and Multiple Capital Inputs

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  • Robert S. Chirinko

Abstract

Despite their solid theoretical basis, models of business investment based on Tobin's Q theory have recorded a generally disappointing empirical performance. This paper examines one possible source of misspecification. When the firm's technology is expanded to include two or more capital inputs, the investment equation following from maximizing behavior includes Q as well as a series of additional explanatory variables. The importance of these omitted variables is assessed, and the econometric evidence is mixed, as the Multi-Capital Q model clearly dominates the Conventional specification but empirical problems remain. In addition, the implications of the parameter estimates from the Conventional and Multi-Capital models for tax policy are noted.

Suggested Citation

  • Robert S. Chirinko, 1986. "Investment, Tobin's Q, and Multiple Capital Inputs," NBER Working Papers 2033, National Bureau of Economic Research, Inc.
    • Handle: RePEc:nbr:nberwo:2033
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    Cited by:

    1. Georgy Idrisov, 2010. "Factors of Demand for Imported Goods for Investment Purpose to Russia," Research Paper Series, Gaidar Institute for Economic Policy, issue 138P.
    2. Kaies Samet, 2010. "The creative intelligence," Working paper serie RMT - Grenoble Ecole de Management hal-00512539, HAL.

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