On "q"

The introduction of Tobin's q-ratio in the literature has prompted noteworthy advances in economic model-building and empirical analysis. A major shortcoming has been the lack of a convincing measure of marginal q. Herein an alternative approach for measuring marginal q is presented, one based on an event study of capital expenditure announcements. The measures of marginal q are shown to yield reasonable and consistent estimates. The marginal q variables perform well against the hypothesized relationships developed from q theory. A key result is that classifying firms according to their average q measures as a proxy for marginal q is likely to lead to misclassification problems.