Using Patent Capital to Estimate Tobin's q

Forthcoming at Journal of Financial and Quantitative Analysis

59 Pages Posted: 17 Jul 2019 Last revised: 7 Mar 2022

See all articles by Michael Woeppel

Michael Woeppel

Indiana University - Kelley School of Business - Department of Finance

Date Written: April 30, 2021

Abstract

I construct a new proxy for Tobin's q that incorporates the replacement cost of patent capital. This proxy, which I call patent q, explains up to 62% more variation in investment than other proxies for q. Furthermore, investment is more sensitive to patent q than to other proxies for q. Although investment is predicted more accurately by, and is more sensitive to, patent q, controlling for patent q leads to relatively larger, not smaller, cash flow coefficients. All results are stronger in subsamples with more patent capital. Overall, patent q strengthens the historically weak investment-q relation.

Keywords: Intangible capital, investment, patents, Tobin's q

JEL Classification: G31, O33, O34

Suggested Citation

Woeppel, Michael, Using Patent Capital to Estimate Tobin's q (April 30, 2021). Forthcoming at Journal of Financial and Quantitative Analysis, Available at SSRN: https://ssrn.com/abstract=3420322 or http://dx.doi.org/10.2139/ssrn.3420322

Michael Woeppel (Contact Author)

Indiana University - Kelley School of Business - Department of Finance ( email )

1309 E. 10th St.
Bloomington, IN 47405
United States

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