Marginal q

52 Pages Posted: 7 Apr 2020 Last revised: 8 Aug 2022

See all articles by Vito Gala

Vito Gala

Morningstar Investment Management LLC

Joao F. Gomes

The Wharton School

Tong Liu

MIT Sloan School of Management

Date Written: August 3, 2022


We propose a new method to estimate the marginal value of capital under minimal assumptions. Combining asset prices with fundamentals, our method provides a model-free estimate of marginal q together with a simple correction for measurement error in (average) Tobin’s Q. Our measure of marginal q yields plausible and robust estimates of adjustment costs and sensitivities of investment to fundamentals. It explains capital investment better than Tobin’s Q, and drives out cash flow. These results raise serious questions about the large body of empirical evidence that relies on Tobin’s Q to proxy for marginal q and control for investment opportunities.

Keywords: Corporate Investment, Firm Decisions, Value of Capital, Marginal q, Tobin Q

JEL Classification: D21, D22, D24, D92, E22, G31, G32

Suggested Citation

Gala, Vito and Gomes, João F. and Liu, Tong, Marginal q (August 3, 2022). Jacobs Levy Equity Management Center for Quantitative Financial Research Paper, Available at SSRN: or

Vito Gala (Contact Author)

Morningstar Investment Management LLC

22 W Washington Street
Chicago, IL 60602
United States

João F. Gomes

The Wharton School ( email )

2329 SH-DH
3620 Locust Walk
Philadelphia, PA 19104
United States
215-898-3666 (Phone)
215-898-6200 (Fax)


Tong Liu

MIT Sloan School of Management ( email )

100 Main Street, E62-623
Cambridge, MA 02142


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