Learning and the Improving Relationship Between Investment and q

52 Pages Posted: 21 Nov 2017 Last revised: 18 Apr 2018

Daniel Andrei

University of California, Los Angeles (UCLA) - Anderson School of Management

William Mann

University of California, Los Angeles (UCLA) - Anderson School of Management

Nathalie Moyen

University of Colorado at Boulder - Department of Finance

Date Written: January 24, 2018

Abstract

We show that the relationship between aggregate investment and Tobin’s q has become remarkably tight in recent years, contrasting with earlier eras. We attribute this change to the growing empirical dispersion in Tobin’s q, which we document in both in the cross-section and the time-series. To study the source of this dispersion, we augment a standard investment model with learning. Information acquisition endogenously amplifies volatility in the firm’s value function. Perhaps counterintuitively, the investment-q regression works better for research-intensive industries, a growing segment of the economy, despite their lower level of tangible capital. We confirm the model’s predictions in the data, and disentangle our mechanism from measurement error in q.

Suggested Citation

Andrei, Daniel and Mann, William and Moyen, Nathalie, Learning and the Improving Relationship Between Investment and q (January 24, 2018). Available at SSRN: https://ssrn.com/abstract=3073938 or http://dx.doi.org/10.2139/ssrn.3073938

Daniel Andrei (Contact Author)

University of California, Los Angeles (UCLA) - Anderson School of Management ( email )

110 Westwood Plaza
Los Angeles, CA 90095-1481
United States

William Mann

University of California, Los Angeles (UCLA) - Anderson School of Management ( email )

110 Westwood Plaza
Los Angeles, CA 90095-1481
United States

Nathalie Moyen

University of Colorado at Boulder - Department of Finance ( email )

Campus Box 419
Boulder, CO 80309
United States
303-735-4931 (Phone)
303-492-5962 (Fax)

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