Corporate Investment: Accounting for Alternative Propensities
- *Corresponding Author:
- Joseph PO
School of Management
University at Buffalo-SUNY, Buffalo
NY 14260, United States
E-mail: [email protected]
Received Date: May 15, 2015; Accepted Date: August 26, 2015; Published Date: September 01, 2015
Citation: Joseph PO, Wu S (2015) Corporate Investment: Accounting for Alternative Propensities. J Stock Forex Trad 4:157. doi:10.4172/2168-9458.1000157
Copyright: © 2015 Joseph PO, et al. This is an open-access article distributed under the terms of the Creative Commons Attribution License, which permits unrestricted use, distribution, and reproduction in any medium, provided the original author and source are credited.
We investigate whether previous evidence of the weakness of Tobin’s q ratio to explain variation in capital expenditure investment stems from ignoring R&D as an alternative investment. We develop and test modified q models that account for individual firms’ ex ante propensities to make these alternative types of investment. The structure of these models leads naturally to our use of propensity regression methodology in empirical tests. Using data on U.S. firms for 1974-2008, our approach yields strong and robust support for q theory. We also find evidence of the influence of financial constraints on investment.