What do frictions mean for Q-theory testing?

This paper develops and empirically tests a model designed to distinguish the roleof real and nancing frictions on firms´investment, debt nancing and equity nancingpolicies. Real frictions include xed costs of investment and adjustment costs. Financ-ing frictions include taxes, collateral constraints, Motation costs of equity and dividendconstraints. Because of nancing frictions, all corporate policies are interrelated and de-pend on average Q. Due to xed costs of investment and binding nancing constraints,the sensitivity of corporate policies to Q is non-linear.[...]

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Year of publication:	2008-11-01
Authors:	Bustamante, Maria Cecilia
Institutions:	Finrisk
Subject:	Finanzierungstheorie \| Testkonstruktion \| Fixe Kosten \| fixed costs

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1 Introduction
1.1 Related literature
2 The Model
2.1 The Problem of the Firm
2.2 Optimal Investment Policies
2.3 Optimal Financing Policies
3 Testing Q-theory on Corporate Policies
3.1 Empirical Approach
3.2 Testing Q-theory on Investment Policies
3.3 Testing Q-theory on Financing Policies
3.4 Robustness checks
4 Asset pricing implications
4.1 An extension of the basic model
4.2 Why has the model worked for stock returns?
5 Conclusions
References
6 Appendix
6.1 Average Q and marginal q
6.2 Binding collateral constraints
6.3 The inaction region of investment

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