Q, Cash Flow and Investment: An Econometric Critique
نویسندگان
چکیده
Q, Cash Flow and Investment: An Econometric Critique The effects of measurement and speci cation error on estimates of the Q and cash ow model of investment are investigated. Two sources of error are considered: expensing of R&D expenditures and failing to identify that component of cash ow which relaxes nancing constraints. We apply random-effects and instrumental variables estimators to a model that addresses these sources of error. We nd that: (1) the capitalization of R&D strengthens the explanatory power of the model; (2) expected and unexpected components of cash ow have different effects; and (3) the effects of Q are much more evident in rms facing low costs of external nance.
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