Q-theory predicts that investment frictions steepen the relation between expected returns and firm investment. Using financing constraints to proxy for investment frictions, we show only weak evidence that the investment-to-assets and asset growth effects in the cross section of returns are...

We find that innovative efficiency (IE), patents or citations scaled by research and development expenditures, is a strong positive predictor of future returns after controlling for firm characteristics and risk. The IE-return relation is associated with the loading on a mispricing factor, and...