Please use this identifier to cite or link to this item: https://hdl.handle.net/10419/277351 
Year of Publication: 
2016
Citation: 
[Journal:] European Journal of Economics and Economic Policies: Intervention (EJEEP) [ISSN:] 2052-7772 [Volume:] 13 [Issue:] 1 [Year:] 2016 [Pages:] 103-113
Publisher: 
Edward Elgar Publishing, Cheltenham
Abstract: 
This note considers Tobin's average Q in a framework where firms finance investment by equities and debt. The determination of its long-run equilibrium value Q° is based on positing equality of the loan rate and, adjusted for a risk premium, the return on equities. Q° can thus be characterized as a ratio of two rates representing the somewhat modified interest costs and profits of the firms. The familiar benchmark value Q° = 1 obtains if another condition on the risk premium holds true, which may or may not be the case. An elementary numerical check demonstrates that possible deviations of Q° from unity are not overly dramatic.
Subjects: 
Tobin's average Q
debt and equity financing
no-arbitrage condition
fundamentalist trader
JEL: 
C02
D84
E12
E30
Persistent Identifier of the first edition: 
Creative Commons License: 
cc-by Logo
Document Type: 
Article

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