On the long-run equilibrium value of Tobin's average Q

Arbeitspapier

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 Qo is based on positing equality of the loan rate and, adjusted for a risk premium, the return on equities. Qo 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 Qo=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 Qo from unity are not overly dramatic.

Object Details

• Language: Englisch

References and Relationships

• Bibliographic citation: Series: FinMaP-Working Paper ; No. 49

Classification and Topics

• Classification: Wirtschaft ; Mathematical Methods ; Expectations; Speculations ; General Aggregative Models: Keynes; Keynesian; Post-Keynesian ; Prices, Business Fluctuations, and Cycles: General (includes Measurement and Data)
• Subject: Tobin's average Q ; debt and equity financing ; no-arbitrage condition ; fundamentalist traders

Contributors, Places and Time

• Event: Geistige Schöpfung
• (who): Franke, Rainer ; Yanovski, Boyan
• Event: Veröffentlichung
• (who): Kiel University, FinMaP - Financial Distortions and Macroeconomic Performance
• (where): Kiel
• (when): 2015

Further information

• Handle: http://hdl.handle.net/10419/121862
• Last update: 10.03.2025, 11:45 AM CET