| Abstract: | New developments in the economics of capital investment emphasize the role of financial variables. Econometric evidence on these hypotheses is potentially compromised by measurement error due to accounting conventions. The paper reviews new capital investment models and considers ways in which accounting procedures might lead to measurement error biases. Advances in errors-in-variables econometric models are employed to gauge the impact of measurement error on estimates of financial influences on capital investment. Cash-flow models appear to be especially susceptible to measurement error but q models seem fairly insensitive to measurement problems. |
