Download this Paper Open PDF in Browser

Speed and Tobin's Q

49 Pages Posted: 20 Feb 2008 Last revised: 24 Mar 2017

Gonçalo Pacheco-de-Almeida

HEC Paris - Strategy & Business Policy

Ashton Hawk

Ohio State University (OSU) - Fisher College of Business

Bernard Yin Yeung

National University of Singapore - Business School

Date Written: April 15, 2008

Abstract

Firms that are slow in the execution of investment projects often incur substantial revenue losses. However, accelerating investments generally results in higher investment costs. In this paper, we integrate this investment speed tradeoff in a reduced-form model of project development to create an empirical proxy for firm speed. We examine how deviations from industry-average speed in the execution of large investments in oil and gas facilities worldwide from 1996 to 2005 impact firm value, as measured by Tobin's q. We find that there is substantial variation in investment speed among firms in the oil and gas industry. Using a linear correlated random parameter model to account for unobserved firm heterogeneity, we show that faster firms have higher firm value when speed results from firms' dynamic capabilities. On average, accelerating a firm's investments by 5% (or 1 month) below the industry norm due to dynamic capabilities increases market value by $214.3 million. Additionally, we show that the effect of speed on firm value varies widely among firms and is amplified by good corporate governance but often mitigated by the level of firms' debt.

Keywords: time-based competition, dynamic capabilities, strategy dynamics, firm value, project management, correlated random parameters

Suggested Citation

Pacheco-de-Almeida, Gonçalo and Hawk, Ashton and Yeung, Bernard Yin, Speed and Tobin's Q (April 15, 2008). HEC Paris Research Paper No. SPE-2017-1198. Available at SSRN: https://ssrn.com/abstract=1095492 or http://dx.doi.org/10.2139/ssrn.1095492

Gonçalo Pacheco-de-Almeida (Contact Author)

HEC Paris - Strategy & Business Policy ( email )

Jouy-en-Josas Cedex, 78351
France
(+33) (0)1 39 67 97 62 (Phone)

HOME PAGE: http://www.hec.edu/Faculty-Research/Faculty-Directory/PACHECO-DE-ALMEIDA-Goncalo

Ashton Hawk

Ohio State University (OSU) - Fisher College of Business ( email )

2100 Neil Avenue
Columbus, OH 43210-1144
United States

Bernard Yin Yeung

National University of Singapore - Business School ( email )

15 Kent Ridge Drive
BIZ 1 Level 6
Singapore, 119245
Singapore
65 6516 3075 (Phone)
65 6779 1365 (Fax)

Paper statistics

Downloads
288
Rank
87,722
Abstract Views
1,658