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Industry specific effects in investment performance and valuation of firms


A necessary criterion for a performance measure in corporate governance is the degree to which it mirrors how well the management succeeds in maximizing firm value. Such a performance measure is marginal q which links changes in firm value to the investments undertaken by the management. Empirical studies of investment and performance based on marginal q have demonstrated the usefulness of this measure. Most research however, has mainly focused on long-term performance. This paper takes a short-term perspective and, based on the marginal q-theory, considers how firms’ market values change in the extreme stock price cycle of a stock market bubble. Using a data set of listed Swedish corporations we find an anomaly in form of a new industry specific effect that, in addition to investment, explains changes in firm value.

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  1. A theoretical proof of the advantages of using a marginal q was first presented by Hayashi (1982).

  2. The advantages of using a marginal q instead of Tobin’s q in studies of investment in firms and corporate governance issues have been further demonstrated in Gugler and Yortuglu (2003) and Gugler et al. (2004).

  3. The term “new” industry will be used in the paper, as an analogy to high-tech and knowledge intensive industries, formally defined as firms belonging to the Biotechnology, IT and Telecommunication industries.

  4. Multiplied by degrees of freedom these correlations give us chi-squared distributed test statistics of 10.12 respectively 2.38 (see Griffith et al. 1993, p. 552). Hence, a null hypothesis of no correlation between the residuals at the 5-per cent level can only be rejected for the first time period.


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Correspondence to Per-Olof Bjuggren.

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Bjuggren, PO., Wiberg, D. Industry specific effects in investment performance and valuation of firms. Empirica 35, 279–291 (2008).

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  • Marginal q
  • Investment
  • Stock bubbles
  • Different industries

JEL Classification

  • G14
  • G31
  • G34
  • L21