Scandinavian Working Papers in Economics

Working Paper Series in Economics and Institutions of Innovation,
Royal Institute of Technology, CESIS - Centre of Excellence for Science and Innovation Studies

No 45: Industry Specific Effects in Investment Performance and Valuation of Firms - Marginal q in a Stock Market Bubble

Per-Olof Bjuggren () and Daniel Wiberg ()
Additional contact information
Per-Olof Bjuggren: Jönköping International Business School, JIBS, Postal: Jönköping International Business School (JIBS).JIBS, P.O Box 1026, SE-551 11, Jönköping Sweden,
Daniel Wiberg: Jönköping International Business School, JIBS, Postal: Jönköping International Business School (JIBS).JIBS, P.O Box 1026, SE-551 11, Jönköping Sweden,

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 decided 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 market values change in the extreme stock price cycle of a stock market bubble. We find an anomaly in form of a new industry specific effect that, in addition to investment, explains changes in firm value.

Keywords: Marginal q; Investment; Stock bubbles; Different industries

JEL-codes: G14; G31; G34; L21

17 pages, December 28, 2005

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