Beyond Q: Investment Without Asset Prices
Beyond Q: Investment Without Asset Prices
Joao F. Gomes The Wharton School
Vito Gala London Business School
July 22, 2013
The Wharton School Research Paper No. 41
Abstract:
Empirical corporate finance studies often rely on measures of Tobin’s Q to control for “fundamental” determinants of investment. However, Tobin’s Q is a good summary of investment behavior only under very stringent conditions and it is far better to instead use the underlying state variables directly. In this paper we show that under very general assumptions about the nature of technology and markets, these state variables are easily measurable and greatly improve the empirical fit of investment models. Moreover even a general first or second order polynomial that does not rely on additional details about the nature of the investment problem provides a better overall fit and accounts for a larger fraction of the total variation in corporate investment than standard Q measures.
About bambooinnovator
Kee Koon Boon (“KB”) is the co-founder and director of HERO Investment Management which provides specialized fund management and investment advisory services to the ARCHEA Asia HERO Innovators Fund (www.heroinnovator.com), the only Asian SMID-cap tech-focused fund in the industry. KB is an internationally featured investor rooted in the principles of value investing for over a decade as a fund manager and analyst in the Asian capital markets who started his career at a boutique hedge fund in Singapore where he was with the firm since 2002 and was also part of the core investment committee in significantly outperforming the index in the 10-year-plus-old flagship Asian fund. He was also the portfolio manager for Asia-Pacific equities at Korea’s largest mutual fund company. Prior to setting up the H.E.R.O. Innovators Fund, KB was the Chief Investment Officer & CEO of a Singapore Registered Fund Management Company (RFMC) where he is responsible for listed Asian equity investments.
KB had taught accounting at the Singapore Management University (SMU) as a faculty member and also pioneered the 15-week course on Accounting Fraud in Asia as an official module at SMU. KB remains grateful and honored to be invited by Singapore’s financial regulator Monetary Authority of Singapore (MAS) to present to their top management team about implementing a world’s first fact-based forward-looking fraud detection framework to bring about benefits for the capital markets in Singapore and for the public and investment community.
KB also served the community in sharing his insights in writing articles about value investing and corporate governance in the media that include Business Times, Straits Times, Jakarta Post, Manual of Ideas, Investopedia, TedXWallStreet. He had also presented in top investment, banking and finance conferences in America, Italy, Sydney, Cape Town, HK, China. He has trained CEOs, entrepreneurs, CFOs, management executives in business strategy & business model innovation in Singapore, HK and China.
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