A re-examination of the competing theories of investment using panel data for US manufacturing firms finds that the time-series regressions rank the neoclassical model as the best and the cross-section and fixed effects regressions give the number 1 spot to the cash flow model. If the results...

The evidence in this paper suggests that the q-theory of investment is not adequate to explain capital expenditure decisions at the firm level. Managerial as well as market perception is important, with the former more critical than the latter. The results also suggest that stock market activity...