Bias-Corrected Nonlinear Investment- q Relation in the Cross Section of Firms
Abstract
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)
Fields of Study & Subjects
Financial Markets and Investment Strategies
Stock Market Forecasting Methods
Complex Systems and Time Series Analysis
Publication details
- Journal / source
- The Review of Corporate Finance Studies
- Publisher
- Oxford University Press (OUP)
- Volume
- 15
- Issue
- 3
- Pages
- 880–921
- Publication date
- 11 April 2026
- Language
- EN