Bias-Corrected Nonlinear Investment- q Relation in the Cross Section of Firms

Suyong Song; Hyunbok Wee

doi:10.1093/rcfs/cfag010

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Bias-Corrected Nonlinear Investment- q Relation in the Cross Section of Firms

Journal article

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Bias-Corrected Nonlinear Investment- q Relation in the Cross Section of Firms

Suyong Song and Hyunbok Wee

The Review of Corporate Finance Studies

04/17/2026

DOI: 10.1093/rcfs/cfag010

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Abstract

We study a nonlinear relationship between corporate investment and Tobin’s q in the cross section of firms. After correcting for nonlinear errors using a repeated measurement of q derived from analysts’ forecasts, we find evidence of varying investment-q sensitivity across firms. The investment-q sensitivity is low for firms with low q. It then becomes more pronounced at intermediate values before weakening at high values of q, resulting in an S-shaped pattern. In the cross section, the true investment-q relation is therefore not strictly linear. Firm investment is predicted to remain similar among firms with low q, suggesting that increases in q do not necessarily lead firms to increase investment significantly. (JEL C21, C26, E22, G31)

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Details

Title: Subtitle: Bias-Corrected Nonlinear Investment- q Relation in the Cross Section of Firms
Creators: Suyong Song - University of Iowa
Hyunbok Wee - Tulane University
Resource Type: Journal article
Publication Details: The Review of Corporate Finance Studies
DOI: 10.1093/rcfs/cfag010
ISSN: 2046-9128
eISSN: 2046-9136
Publisher: Oxford University Press
Language: English
Electronic publication date: 04/17/2026
Academic Unit: Economics; Finance
Record Identifier: 9985157605602771

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