Tobin's Q at the Canadian Pacific Railway, 1890-2016: An Historical Examination of the Efficacy of Strategy

36 Pages Posted: 16 Jan 2018

See all articles by Gary Spraakman

Gary Spraakman

York University

Stephan Fafatas

Washington and Lee University - Department of Accounting

Date Written: January 17, 2018

Abstract

Tobin’s Q was studied for 127 years at the Canadian Pacific Railway (CPR) with qualitative and quantitative methods. Restrictive government-imposed freight rates, competition from trucks and cars, and changes to the demand for railway services led the CPR to diversify into unrelated businesses. CPR’s modified Q value was explained positively and significantly by its profitability (net income divided by total revenue) and negatively and significantly by its diversification strategy (percent of sales from unrelated businesses). The average modified Q value was 0.98 over the 127 years.

Suggested Citation

Spraakman, Gary and Fafatas, Stephan, Tobin's Q at the Canadian Pacific Railway, 1890-2016: An Historical Examination of the Efficacy of Strategy (January 17, 2018). Available at SSRN: https://ssrn.com/abstract=3103010 or http://dx.doi.org/10.2139/ssrn.3103010

Gary Spraakman (Contact Author)

York University ( email )

Room 282 Atkinson Building
York University
Toronto, Ontario M3J 1P3
Canada
416 736 2100,22155 (Phone)
416 736 5963 (Fax)

Stephan Fafatas

Washington and Lee University - Department of Accounting ( email )

Lexington, VA 24450
United States

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