THE COST OF CAPITAL, MACAULAY'S DURATION, AND TOBIN'S <i>q</i>

Ben-Horim, Moshe; Callen, Jeffrey L.

doi:10.1111/j.1475-6803.1989.tb00109.x

Cited by 19 publications

(5 citation statements)

References 15 publications

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“…Various papers have applied indicators of the presence of growth opportunities, such as market to book values of equity (Chung andCharoenwong, 1991, Barclay andSmith, 1995), and Tobin's Q (Ben-Horim and Callen, 1989). Such proxies for the value of growth opportunities are not analysed in this paper.…”

Section: Discussionmentioning

confidence: 99%

Measuring growth opportunities

Danbolt

Hirst²,

Jones³

2002

Applied Financial Economics

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Although the impact of growth opportunities on company value has been recognised since Miller and Modigliani (1961), relatively little empirical work has been undertaken to value growth opportunities. In this paper we test the validity of the KBM model (Kester (1984) and Brealey and Myers (1981)) on a sample of 278 large UK companies for 1987-1995. Applying standard assumptions, we find the value of growth opportunities to account for a larger proportion of market values than assets-in-place.However, tests of the KBM model cast doubt on the credibility of these results and the validity of the model. The KBM model is highly sensitive to the inclusion of inflation in the risk free interest rate, and with a real interest rate (which on theoretical grounds is preferable), the model ceases to provide credible results. The model also fails to provide results consistent with expectations derived from option pricing theory regarding the relationship between the value of growth opportunities and the value of assets-in-place. These limitations of the KBM model indicate a need for a reappraisal of the method of measuring the value of growth opportunities. Measuring Growth Opportunities ABSTRACTAlthough the impact of growth opportunities on company value has been recognised

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Section: Discussionmentioning

confidence: 99%

Measuring growth opportunities

Danbolt

Hirst²,

Jones³

2002

Applied Financial Economics

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“…Subramanyam (2014) and Ahmad and Jusoh (2014) argue that market-based measures may be superior to the accounting-based measures as accounting-based valuation methods are more likely to contain management manipulations and distortions whose personal interests may depend on reported accounting data. Tobin's Q is also considered superior in capturing firm value as it provides the market's estimate of firm growth and profit potential rather than just historical or subjective estimate, therefore it is forward-looking and captures investor expectations (Ben-horim and Callen, 1989;Strecker, 2009).…”

Section: Methodsmentioning

confidence: 99%

Corporate social responsibility, firm value and life cycle: evidence from Southeast Asian countries

Hendratama

Huang

2021

JAAR

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PurposeThis study extends related research on corporate social responsibility (CSR) into the less-researched realm of Southeast Asia setting by investigating the role of life cycle stages on the relationship between CSR and firm value.Design/methodology/approachThis study uses a sample of 1,247 firm-year observations of firms listed in Southeast Asia from 2012 to 2018. Descriptive, multiple regression and sensitivity analyses are presented in the study.FindingsThe results provide evidence that although CSR and firm value, in general, have a positive relationship, the relationship is contingent on the stages of firm's life cycle. The effect of each CSR dimension on firm value differs across life cycle stages. The social dimension of CSR predicts higher firm value at the introduction and mature stages. The governance dimension affects firm value at the growth and shake-out/decline stages. Moreover, the environmental dimension affects firm value only at the later stage of the life cycle.Research limitations/implicationsThis study is limited to five countries in Southeast Asia, namely Indonesia, Malaysia, Philippines, Singapore and Thailand from 2012 to 2018. Future studies may explore other countries and investigate the impact of country classification on the relationship between CSR and firm value.Practical implicationsPolicymakers, managers and other decision-makers may have a better understanding of firm's behavior in different life cycle stages. With such understanding, CSR will be successfully adopted in decision making, formulation and implementation of policies.Originality/valueCSR-related research in Southeast Asia remains an under-studied domain, and little attention has been dedicated to different dimensions of CSR and life cycle in the area of CSR-related preference for decision making.

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“…Financial market measures, such as Tobin's q, represent the ex ante market valuation of the level and risk of future firm cash flows (Ben-Horim andCallen 1989, Smirlock et al 1984). As noted by a number of scholars, an accurate analysis of the relationship between firm-level investments and market value should examine their impact on the market-to-book ratio rather than market capitalization alone (Foray et al 2007, Kohli et al 2012.…”

Section: Introductionmentioning

confidence: 99%

Research Note—Business Value of Information Technology: Testing the Interaction Effect of IT and R&D on Tobin's Q

Bardhan

Krishnan

Lin

2013

Information Systems Research

142

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T he business case for investing in information technology (IT) has received increasing scrutiny in recent years. We propose that IT investments create additional business value through interactions with other business processes. In this paper, we formalize the interaction effect of IT by focusing on one core function, namely, research and development (R&D). We hypothesize that investments in IT can interact with and complement a firm's R&D investments, enhancing the firm's shareholder value creation potential. We test this by hypothesis by estimating the interaction impact of IT and R&D investments on Tobin's q, a forward-looking measure of firm performance using a recent multiyear, firm-level, archival data set. Our results suggest that the interaction effect of R&D and IT on Tobin's q is positive and significant after controlling for other firm-and industryspecific effects. Our findings provide rigorous empirical support for recent anecdotal evidence in the managerial literature with respect to the manner in which IT is enabling R&D-intensive innovation processes. Our analysis underscores the need for coordinated investments in IT and R&D, and permeating IT capabilities throughout other business processes such as R&D.

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THE COST OF CAPITAL, MACAULAY'S DURATION, AND TOBIN'S q

Cited by 19 publications

References 15 publications

Measuring growth opportunities

Measuring growth opportunities

Corporate social responsibility, firm value and life cycle: evidence from Southeast Asian countries

Research Note—Business Value of Information Technology: Testing the Interaction Effect of IT and R&D on Tobin's Q

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