Fabio Schiantarelli

Investment and Tobin's Q: Evidence from company panel data

Abstract A Q model of investment is estimated using data for an unbalanced panel of UK companies over the period 1975-86. Correlated firm-specific effects and the endogeneity of Q are allowed for using a Generalised Method of Moments estimator. In the calculation of Q we estimate the tax incentives available to individual companies. Q is found to be a significant factor in the explanation of company investment, although its effect is small and a careful treatment of the dynamic structure of Q models appears critical. In addition to Q, both cash flow and output variables are found to play an independent and significant role.

Monopolistic competition and the Q theory of investment

Abstract In this paper we analyse the implications for Q models of investment of replacing the assumption of perfect competition in the output market with the assumption of monopolistic competition. The structural investment equation that can be derived in this case has a richer dynamic structure than the conventional one and it contains, in addition to present and future Q , output as an explanatory variable. In the applied section we discuss the extent to which monopolistic competition helps in providing a remedy for the empirical weaknesses of Q models. The estimates are obtained using aggregate data for U.K. industrial and commercial companies for the period 1951–1979.

Investment decisions and the role of debt, liquid assets and cash flow: evidence from Italian panel data

In this paper we study the consequences of imperfect substitutability between internal and external sources of finance for firmś real decisions. The relationship between financial variables and investment when capital markets are imperfect is analysed at both the theoretical and empirical level, using two panels of individual Italian firms. Under the hypothesis that the firm incurs costs of agency and financial distress, we derive both a Q and a Euler equation model for investment, which are then estimated together with a more loosely specified investment equation. The empirical results provide support for a significant departure from the hypothesis of perfect substitutability between internal and external sources of finance.