Abstract
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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Notes
A theoretical proof of the advantages of using a marginal q was first presented by Hayashi (1982).
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.
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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Bjuggren, PO., Wiberg, D. Industry specific effects in investment performance and valuation of firms. Empirica 35, 279–291 (2008). https://doi.org/10.1007/s10663-008-9064-5
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DOI: https://doi.org/10.1007/s10663-008-9064-5
Keywords
- Marginal q
- Investment
- Stock bubbles
- Different industries
JEL Classification
- G14
- G31
- G34
- L21