Tobin's q theory accurately predicts investment behavior in financial markets
the verdict
INSUFFICIENT LEANING
refutedsupported
the weight of evidence
4 sources for · 0 against
Four sources partially discuss related economic measures and firm valuation, but they do not provide sufficient evidence to support the claim that Tobin's q theory accurately predicts investment behavior.
The recent home bias is primarily related to the equity bias as measured by the international capital asset pricing model (CAPM); this measure has declined over the past two decades amid financial globalization, but remains high in most developed countries. The key to understanding this puzzling phenomenon lies in how accurately this indicator can be predicted. In this paper, we propose to use the savings retention coefficient estimated by the Feldstein–Horioka (F–H) regression as a cross-country measure of home bias. We re-estimate the savings retention coefficient based on an estimation model in which the FH regression is embedded in the model derived from Tobin's q-theory of saddle-road dynamics of investment under convex adjustment costs. We then use dynamic panel estimation to estimate the new measure in OECD countries. The main empirical results are as follows. The new measure of home country bias, such as the equity bias measure, declined steadily until 2008, but recovered to the level of the 60 s and 70 s after the 2008 financial crisis. Interestingly, people expected home country bias to be very high after the financial crisis, but in fact it simply returned to its previous level.
× Pré-Publication, Document De Travail Année : 2016 Thorstein Veblen's 1904 contributions to Q and insider/outsider analysis Marion Dieudonné (1, 2) Afficher plus de détails 1 LEDA-SDFi - Stratégie et Dynamiques Financières (Université Paris-Dauphine Place du Mal de Lattre de Tassigny 75775 Paris Cedex 16 - France) 103926 LEDa - Laboratoire d'Economie de Dauphine (Place du Maréchal de Lattre de Tassigny - 75775 PARIS Cedex 16 - France) 559342 IRD - Institut de Recherche pour le Développement : UMR260 (Siège Le Sextant 44, bd de Dunkerque CS 90009 13572 Marseille cedex 02 - France) 67872 Université Paris Dauphine-PSL (Place du Maréchal de Lattre de Tassigny 75775 PARIS Cedex 16 - France) 300302 PSL - Université Paris Sciences et Lettres (60 rue Mazarine 75006 Paris - France) 564132 CNRS - Centre National de la Recherche Scientifique : UMR8007 (France) 441569 "> LEDA-SDFi - Stratégie et Dynamiques Financières 2 Université Paris Dauphine-PSL (Place du Maréchal de Lattre de Tassigny 75775 PARIS Cedex 16 - France) 300302 PSL - Université Paris Sciences et Lettres (60 rue Mazarine 75006 Paris - France) 564132 "> Université Paris Dauphine-PSL Marion Dieudonné Fonction : Auteur PersonId : 975975 LEDA-SDFi - Stratégie et Dynamiques Financières Université Paris Dauphine-PSL Réduire la vue détaillée Résumé en The beginning of the 20th century saw the first steps in a tradition of leading economists explaining the link between corporate finance, investment and financial structure.
The writings of John Maynard Keynes (1930), Gunnar Myrdal (1931, 1933) and James Tobin (1969) deal with the development of an investment theory based on the financial structure. In this context, we give a new presentation of Wicksellian and Keynesian theories. The initial impetus given by Knut Wicksell (1898) with his system of two interest rates must be emphasized (Schmidt, 1995).
However, these studies do not mention Thorstein Veblen (1904, 1908, 1923), one of the founding fathers of institutionalism, who remains unknown, particularly in this tradition, although recent literature (Ganley, 2004; Gagnon, 2007; Cochrane, 2011; Mendez, 2012) considers that he made a real contribution to capital theory. He made an early American analysis of corporate governance structure, which emerged as a central issue in the early 20th century in light of the development of financial instruments, shareholder behavior and corporate equity valuation concerns.
Our work is based on a critical review of the literature, which is guilty of omissions, lack of accuracy and errors of formalization. The theory of the non-neutrality of the financial structure remains wholly relevant today, so that in this paper, we focus on the reasons why Veblen’s corporate financial analysis should not be forgotten. Mots clés en financial structure corporate governance capital valuation Keynes goodwill investment theory promoter’s profit Myrdal’s Q Tobin’s q Veblen Wicksell windfall profits.
This paper investigates empirically how the value of publicly traded firms is affected by arrangements that protect management from removal. Staggered boards, which a majority of U.S. public companies have, substantially insulate boards from removal in either a hostile takeover or a proxy contest. We find that staggered boards are associated with an economically meaningful reduction in firm value (as measured by Tobin's Q). We also provide suggestive evidence that staggered boards bring about, and not merely reflect, an economically significant reduction in firm value. Finally, the correlation
Author Bebchuk, Lucian Arye Cohen, Alma Published Version http://www.sciencedirect.com/science/article/pii/S0304405X05001169# Metadata Show full item record Citation Lucian A. Bebchuk & Alma Cohen, The Costs of Entrenched Boards, 78 J. Fin. Econ. 409 (2005). Abstract This paper investigates empirically how the value of publicly traded firms is affected by arrangements that protect management from removal. Staggered boards, which a majority of U.S. public companies have, substantially insulate boards from removal in either a hostile takeover or a proxy contest. We find that staggered boards are associated with an economically meaningful reduction in firm value (as measured by Tobin's Q).
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