Tangibility, Intangibility, and the Q Theory of Investment

In this paper, I propose a method to disentangle the informational content of the average Tobin’s q by decomposing it into tangible q and intangible q. I argue that this decomposition increases the explanatory power of the q theory of investment by considering the different nature of corporate investments. The results show that tangible q explains capital expenditures better than does the average Tobin’s q, while intangible q explains innovation investments better than does Tobin’s q. The findings are robust to the inclusion of additional control variables, endogeneity, and an alternative method to measure the value of intangibles