Why Does Equity Capital Flow Out of High Tobin’s q Industries?

Fisher College of Business Working Paper No. 2020-03-002

Charles A. Dice Center Working Paper No. 2020-02

58 Pages Posted: 12 Feb 2020

See all articles by Dong Wook Lee

Dong Wook Lee

Korea University

Hyun-Han Shin

Yonsei University

René M. Stulz

Ohio State University (OSU) - Department of Finance; National Bureau of Economic Research (NBER); European Corporate Governance Institute (ECGI)

Date Written: February 1, 2020

Abstract

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

Lee, Dong Wook and Shin, Hyun-Han and Stulz, Rene M., Why Does Equity Capital Flow Out of High Tobin’s q Industries? (February 1, 2020). Fisher College of Business Working Paper No. 2020-03-002. Available at SSRN: https://ssrn.com/abstract=3535841 or http://dx.doi.org/10.2139/ssrn.3535841

Dong Wook Lee

Korea University ( email )

1 Anam-dong 5 ka
Seoul, 136-701
Korea, Republic of (South Korea)
+82.2.3290.2820 (Phone)
+82.2.3290.1307 (Fax)

Hyun-Han Shin

Yonsei University ( email )

50 Yonsei Ro
Seodaemoon Gu
Seoul
Korea, Republic of (South Korea)
82-2-21235466 (Phone)

HOME PAGE: http://https://ysb.yonsei.ac.kr/faculty.asp?mid=n02&sOpt=&uid=32

Rene M. Stulz (Contact Author)

Ohio State University (OSU) - Department of Finance ( email )

2100 Neil Avenue
Columbus, OH 43210-1144
United States

HOME PAGE: http://www.cob.ohio-state.edu/fin/faculty/stulz

National Bureau of Economic Research (NBER)

1050 Massachusetts Avenue
Cambridge, MA 02138
United States

European Corporate Governance Institute (ECGI)

c/o the Royal Academies of Belgium
Rue Ducale 1 Hertogsstraat
1000 Brussels
Belgium

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