Tobin’s q

Updated: Aug 20, 2021

The ratio of the valuation shareholders put on a firm to the market value of its assets. At the margin the shareholders’ valuation is shown by the share price multiplied by the number of shares.The theory is that if q > 1 a firm should invest; if q < 1 the firm should run down or sell off its capital equipment.

Reference: Oxford Press Dictonary of Economics, 5th edt.

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