Why Does Equity Capital Flow Out of High Tobin’s q Industries?
Charles A. Dice Center Working Paper No. 2020-02
58 Pages Posted: 12 Feb 2020
Date Written: February 1, 2020
High Tobin’s q industries receive more funding from capital markets than low Tobin’s q industries from 1971 to 1996. Since then, the opposite is true. The key to understanding this shift is that large firms for which q is more a proxy for rents than for investment opportunities have become more important within industries. For these firms, repurchases increase with q but capital expenditures do not, so that q explains more the variation of repurchases than of capital expenditures. Consequently, equity capital flows out of high q industries because, for these industries, stock repurchases are high and issuances are low.
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