› › Financial Frictions Investment And Tobin S Q

Financial Frictions, Investment and Tobin's Q

Author : Guido Lorenzoni

Publisher :

Page : 48 pages

File Size : 42,98 MB

Release : 2007

Category : Corporations

ISBN :

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Book Description

We develop a model of investment with financial constraints and use it to investigate the relation between investment and Tobin's q. A firm is financed partly by insiders, who control its assets, and partly by outside investors. When their wealth is scarce, insiders earn a rate of return higher than the market rate of return, i.e., they receive a quasi-rent on invested capital. This rent is priced into the value of the firm, so Tobin's q is driven by two forces: changes in the value of invested capital, and changes in the value of the insiders' future rents per unit of capital. This weakens the correlation between q and investment, relative to the frictionless benchmark. We present a calibrated version of the model, which, due to this effect, generate realistic correlations between investment, q, and cash flow. Keywords: Financial constraints, investment, Tobin's q, limited enforcement. JEL Classifications: E22, E30, E44, G30.



Financial Constraints, Intangible Assets, and Firm Dynamics

Author : Sophia Chen

Publisher : International Monetary Fund

Page : 38 pages

File Size : 32,37 MB

Release : 2014-05-14

Category : Social Science

ISBN : 1484393740

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Book Description

I study whether firms' reliance on intangible assets is an important determinant of financing constraints. I construct new measures of firm-level physical and intangible assets using accounting information on U.S. public firms. I find that firms with a higher share of intangible assets in total assets start smaller, grow faster, and have higher Tobin’s q. Asset tangibility predicts firm dynamics and Tobin’s q up to 30 years but has diminishing predicative power. I develop a model of endogenous financial constraints in which firm size and value are limited by the enforceability of financial contracts. Asset tangibility matters because physical and intangible assets differ in their residual value when the contract is repudiated. This mechanism is qualitatively important to explain stylized facts of firm dynamics and Tobin’s q.



Credit Spreads and Investment Opportunities

Author : Tao Shen

Publisher :

Page : 46 pages

File Size : 11,85 MB

Release : 2015

Category :

ISBN :

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Book Description

Do credit spreads signal firm investment opportunities just like Tobin's q? Because both credit spreads and Tobin's q are market prices, they should contain similar information about the firm. I develop an investment model in which an analytical relation is established between the marginal q and the credit spreads. Using U.S. firm-level data, I find that credit spreads are a statistically important predictor of firm investment and their explanatory power is higher than that of Tobin's q. The empirical evidence shows that credit spreads capture the effects of financial frictions, which drive a wedge between marginal and Tobin's q.



Can Government Demand Stimulate Private Investment? Evidence from U.S. Federal Procurement

Author : Shafik Hebous

Publisher : International Monetary Fund

Page : 33 pages

File Size : 47,24 MB

Release : 2016-03-10

Category : Business & Economics

ISBN : 1513578723

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Book Description

We study the effects of federal purchases on firms’ investment using a novel panel dataset that combines federal procurement contracts in the United States with key financial firm-level information. We find that 1 dollar of federal spending increases firms’ capital investment by 7 to 11 cents. The average effect masks heterogeneity: Effects are stronger for firms that face financing constraints and they are close to 0 for unconstrained firms. In line with the financial accelerator model, our findings indicate that the effect of government purchases works through easing firms’ access to external borrowing. Furthermore, industry-level analysis suggests that that the increase in investment at the firm level translates into an industry-wide effect without crowding-out capital investment of other firms in the same industry.



Corporate Investment in Emerging Markets

Author : Delong Li

Publisher : International Monetary Fund

Page : 30 pages

File Size : 44,7 MB

Release : 2015-12-30

Category : Business & Economics

ISBN : 1513539930

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Book Description

We examine how firm and country heterogeneity shape the response of corporate investment in emerging markets to changes in global interest rates and volatility. We test for the presence of (i) a financing channel originating from changes in the costs of external borrowing and (ii) a real options channel—reflecting firms’ option values to delay investment. We find evidence of the coexistence of both channels. Financially weaker firms reduce investment by more in response to higher interest rates or volatility, while firms with stronger balance sheets become less willing to invest after volatility spikes. Furthermore, the intensity of the financing channel diminishes for firms in countries with lower public debt, higher foreign reserves, or deeper financial markets.



Corporate Investment and the Real Exchange Rate

Author : Mai Chi Dao

Publisher : International Monetary Fund

Page : 47 pages

File Size : 17,23 MB

Release : 2017-08-07

Category : Business & Economics

ISBN : 1484314239

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Book Description

We examine the relationship between real exchange rate depreciations and indicators of firm performance using data for a sample of more than 30,000 firms from 66 (advanced and emerging market) countries over the 2000-2011 period. We show that depreciations boost profits, investment, and sales of firms that are more financially-constrained and have higher labor shares. These findings are consistent with the view that depreciations boost internal financing opportunities by reducing real wages, thereby spurring investment. We show that these effects on firm performance are enduring, including in the market valuation of firms.



Simulation-based Econometric Methods

Author : Christian Gouriéroux

Publisher : OUP Oxford

Page : 190 pages

File Size : 40,73 MB

Release : 1997-01-09

Category : Business & Economics

ISBN : 019152509X

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Book Description

This book introduces a new generation of statistical econometrics. After linear models leading to analytical expressions for estimators, and non-linear models using numerical optimization algorithms, the availability of high- speed computing has enabled econometricians to consider econometric models without simple analytical expressions. The previous difficulties presented by the presence of integrals of large dimensions in the probability density functions or in the moments can be circumvented by a simulation-based approach. After a brief survey of classical parametric and semi-parametric non-linear estimation methods and a description of problems in which criterion functions contain integrals, the authors present a general form of the model where it is possible to simulate the observations. They then move to calibration problems and the simulated analogue of the method of moments, before considering simulated versions of maximum likelihood, pseudo-maximum likelihood, or non-linear least squares. The general principle of indirect inference is presented and is then applied to limited dependent variable models and to financial series.



Investment-less Growth

Author : German Gutierrez

Publisher :

Page : 63 pages

File Size : 15,95 MB

Release : 2016

Category : Corporations

ISBN :

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Book Description

We analyze private fixed investment in the U.S. over the past 30 years. We show that investment is weak relative to measures of profitability and valuation – particularly Tobin’s Q, and that this weakness starts in the early 2000’s. There are two broad categories of explanations: theories that predict low investment because of low Q, and theories that predict low investment despite high Q. We argue that the data does not support the first category, and we focus on the second one. We use industry-level and firm-level data to test whether under-investment relative to Q is driven by (i) financial frictions, (ii) measurement error (due to the rise of intangibles, globalization, etc), (iii) decreased competition (due to technology or regulation), or (iv) tightened governance and/or increased short-termism. We do not find support for theories based on risk premia, financial constraints, or safe asset scarcity, and only weak support for regulatory constraints. Globalization and intangibles explain some of the trends at the industry level, but their explanatory power is quantitatively limited. On the other hand, we find fairly strong support for the competition and short-termism/governance hypotheses. Industries with less entry and more concentration invest less, even after controlling for current market conditions. Within each industry-year, the investment gap is driven by firms that are owned by quasi-indexers and located in industries with less entry/more concentration. These firms spend a disproportionate amount of free cash flows buying back their shares.



Investment: Capital theory and investment behavior

Author : Dale Weldeau Jorgenson

Publisher : MIT Press

Page : 546 pages

File Size : 27,94 MB

Release : 1996

Category : Business & Economics

ISBN : 9780262100564

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Book Description

V.1 Capital theory and investment behavior -- V.2 Tax policy and the cost of capital.



Investment-Less Growth

Author : German Gutierrez Gallardo

Publisher :

Page : 67 pages

File Size : 12,40 MB

Release : 2019

Category :

ISBN :

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Book Description

We analyze private fixed investment in the U.S. over the past 30 years. We show that investment is weak relative to measures of profitability and valuation - particularly Tobin's Q, and that this weakness starts in the early 2000's. There are two broad categories of explanations: theories that predict low investment because of low Q, and theories that predict low investment despite high Q. We argue that the data does not support the first category, and we focus on the second one. We use industry-level and firm-level data to test whether under-investment relative to Q is driven by (i) financial frictions, (ii) measurement error (due to the rise of intangibles, globalization, etc), (iii) decreased competition (due to technology, regulation or common ownership), or (iv) tightened governance and/or increased short-termism. We do not find support for theories based on risk premia, financial constraints, or safe asset scarcity, and only weak support for regulatory constraints. Globalization and intangibles explain some of the trends at the industry level, but their explanatory power is quantitatively limited. On the other hand, we find fairly strong support for the competition and short-termism/governance hypotheses. Industries with more concentration and more common ownership invest less, even after controlling for current market conditions. Within each industry-year, the investment gap is driven by firms that are owned by quasi-indexers and located in industries with more concentration and more common ownership. These firms spend a disproportionate amount of free cash flows buying back their shares.