Non-linear response of firm investment to q: Evidence from Greek listed firms
Open Access
- 21 February 2019
- journal article
- Published by Virtus Interpress in Risk Governance and Control: Financial Markets & Institutions
- Vol. 9 (1), 53-63
- https://doi.org/10.22495/rgcv9i1p5
Abstract
A dynamic-panel model is applied in order to empirically investigate the relationship between business fixed investment and Tobin’s q for the firms listed in the Athens Stock Exchange (ASE). In particular, we search for non-linearities in the underlying relationship between investment and fundamentals, consistent with the presence of multiple regimes. The empirical results support a discontinuity identifying two-regimes: (a) wherein the first (for values of q below a certain threshold) investment is inelastic to q, while in the second it exhibits a positive relationship, and b) a further non-linearity expressed in a concavity of the investment- q relationship implying that for the segment where investment reacts to fundamentals positively, it does so at a decreasing rate evidence which is consistent with the presence of non-convexities in adjustment costsKeywords
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