How Q and cash flow affect investment without frictions: An analytic explanation

Review of Economic Studies

Volumn 78, Issue 4, 2011, Pages 1179-1200

  Abel, Andrew B ^a   Eberly, Janice C ^b  

^a UNIVERSITY OF PENNSYLVANIA   (United States)

^b NORTHWESTERN UNIVERSITY   (United States)

Author keywords

Cash flow; Investment; Tobin's Q

Indexed keywords

CAPITAL FLOW; INDUSTRIAL INVESTMENT; INVESTMENT; MODEL TEST; MODEL VALIDATION; THEORETICAL STUDY;

EID: 84855179312     PISSN: 00346527     EISSN: 1467937X     Source Type: Journal    
DOI: 10.1093/restud/rdr006     Document Type: Article

References (25)

1. ABEL, A. (1983), "Optimal Investment Under Uncertainty", American Economic Review, 73, 228-233.
2. ABEL, A. and EBERLY, J. (1998), "The Mix and Scale of Factors with Irreversibility and Fixed Costs of Investment", Carnegie-Rochester Conference Series on Public Policy, 48, 101-135.
3. ABEL, A. and EBERLY, J. (2005), "Investment, Valuation, and Growth Options" (unpublished, Wharton School of the University of Pennsylvania and Kellogg School of Management, Northwestern University).
4. ALTI, A. (2003), "How Sensitive Is Investment to Cash Flow When Financing Is Frictionless?" The Journal of Finance, 58, 707-722.
5. BRAINARD, W. and TOBIN, J. (1968), "Pitfalls in Financial Model Building", American Economic Review, 58, 99-122.
6. BURNSIDE, C. (1996), "Production Function Regressions, Returns to Scale and Externalities", Journal of Monetary Economics, 37, 177-201.
7. CABALLERO, R. and LEAHY, J. (1996), "Fixed Costs: The Demise of Marginal q" (Working Paper No. 5508, National Bureau of Economic Research).
8. COOPER, R. and EJARQUE, J. (2001), "Exhuming Q: Market Power vs. Capital Market Imperfections" (Working Paper No. 8182, National Bureau of Economic Research).
9. COOPER, R. and EJARQUE, J. (2003), "Financial Frictions and Investment: Requiem in Q", Review of Economic Dynamics, 6, 710-728.
10. COOPER, R. and HALTIWANGER, J. (2006), "On the Nature of Capital Adjustment Costs", Review of Economic Studies, 73, 611-633.
11. EBERLY, J., REBELO, S. and VINCENT, N. (2008), "Investment and Value: A Neoclassical Benchmark" (Working Paper No. 13866, National Bureau of Economic Research).
12. ERICKSON, T. and WHITED, T. (2000), "Measurement Error and the Relationship between Investment and 'q'", Journal of Political Economy, 108, 1027-1057.
13. FAZZARI, S., HUBBARD, G. and PETERSEN, B. (1988), "Finance Constraints and Corporate Investment", Brookings Papers on Economic Activity, 1, 141-195.
14. GILCHRIST, S. and HIMMELBERG, C. (1995), "Evidence on the Role of Cash Flow for Investment", Journal of Monetary Economics, 36, 541-572.
15. GOMES, J. (2001), "Financing Investment", American Economic Review, 91, 1263-1285.
16. HAYASHI, F. (1982), "Tobin's Marginal q and Average q: A Neoclassical Interpretation", Econometrica, 50, 213-224.
17. JORGENSON, D. (1963), "Capital Theory and Investment Behavior", American Economic Review Papers and Proceedings, 53, 247-259.
18. KEYNES, J. (1936), The General Theory of Employment, Interest, and Money (London: Macmillan Press Ltd.)
19. LINDENBERG, E. and ROSS, S. (1981), "Tobin's Q Ratio and Industrial Organization", The Journal of Business, 54, 1-32.
20. LUCAS, R. and PRESCOTT, E. (1971), "Investment Under Uncertainty", Econometrica, 39, 659-681.
21. MUSSA, M. (1977), "External and Internal Adjustment Costs and the Theory of Aggregate and Firm Investment", Economica, 44, 163-178.
22. SALINGER, M. (1984), "Tobin's q, Unionization, and the Concentration-Profits Relationship", The RAND Journal of Economics, 15, 159-170.
23. SARGENT, T. (1980), "'Tobin's q' and the Rate of Investment in General Equilibrium", Carnegie-Rochester Conference Series on Public Policy, 12, 107-154.
24. STIGLER, G. (1964), "A Theory of Oligopoly", Journal of Political Economy, 72, 44-61.
25. TOBIN, J. (1969), "A General Equilibrium Approach to Monetary Theory", Journal of Money, Credit, and Banking, 1, 15-29.