Work

Bias-Corrected Nonlinear Investment- q Relation in the Cross Section of Firms

Year: 2026

Type: article

Abstract: We study a nonlinear relationship between corporate investment and Tobin’s q in the cross section of firms. After correcting for nonlinear errors using a repeated measurement of q derived from analysts’ forecasts, we find evidence of varying investment-q sensitivity across firms. The investment-q sensitivity is low for firms with low q. It then becomes more pronounced at intermediate values before weakening at high values of q, resulting in an S-shaped pattern. In the cross section, the true investment-q relation is therefore not strictly linear. Firm investment is predicted to remain similar among firms with low q, suggesting that increases in q do not necessarily lead firms to increase investment significantly. (JEL C21, C26, E22, G31)

Source: The Review of Corporate Finance Studies

DOI: 10.1093/rcfs/cfag010

Authors: Suyong Song, Hyunbok Wee

Institutions: University of Iowa, Tulane University

Language: English

Topic: Corporate Finance and Governance

Subfield: Accounting

Field: Business, Management and Accounting

Domain: Social Sciences

Open Access status: hybrid

Estimated APC paid: $4,028

OpenAlex ID: W7154847653

FWCI: 20.02

Cites: 40

Cited by: 1

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