Tobin's q-Ratio and Market Reaction to Capital Investment Announcements |
| |
Authors: | Laurence E Blose Joseph C P Shieh |
| |
Institution: | Grand Valley State University, Allendale, MI 49401;National Chengchi University, Taipei, Taiwan, Republic of China |
| |
Abstract: | There is a significant positive relation between Tobin's q-ratio and the magnitude of stock market reaction to capital investment announcements. The findings have the following implications for capital investment theory: (i) The results provide evidence substantiating the link between the q-ratio and real investment for industrial firms. For public utilities however, no such link exists, (ii) The study finds that average q and marginal q are correlated but the relation is somewhat more complicated than simple equality as assumed by numerous empirical studies. (iii) The findings suggest that investors can use average Tobin's q-ratio to identify companies with profitable real capital investment opportunities. |
| |
Keywords: | |
|
|