Does Capital Flow More to High Tobin's Q Industries?
Charles A. Dice Center Working Paper No. 2018-8
51 Pages Posted: 9 May 2018
Date Written: May 9, 2018
We examine whether capital flows more to high Tobin’s q industries and find that it flows more to high q industries from 1971 until 1996 but not from 1997 to 2014. This change is due to a decrease in the q-sensitivity of equity funding resulting mostly from the increased q-sensitivity of repurchases after 1996. The increase in intangible assets, the aging of American firms, and the impact of the China shock explain much of the change in the q-sensitivity of equity funding and repurchases. The results are robust to how q is estimated and to a non-q measure of growth opportunities.
Keywords: capital markets, investment, industry, equity flows, debt flows, external finance, equity repurchases, Tobin’s q
JEL Classification: G31, G35, E22, E44, L16
Suggested Citation: Suggested Citation