OECD Economics Department Working Papers
The views expressed in these papers are those of the author(s) and do not necessarily reflect those of the OECD or of the governments of its member countries.
- ISSN: 18151973 (online)
- https://doi.org/10.1787/18151973
Pure Profit Rates and Tobin's q in Nine OECD Countries
This paper extends a previous study of profit trends to consider valuation ratios (Tobin's q) in nine countries. Tobin's q embodies market expectations and is an indicator of expected pure profit rates on the existing capital stock. Since 1982, equity markets have recovered substantially. By end-1985, values of Tobin's q were close to their 1974 levels and close to the symbolic figure of unity. The theoretical and conceptual relevance of q is considered, as well as data and measurement limitations. Real debt and equity costs of finance are considered in the light of buoyant stock markets. The implications of the strong recent recovery in q for investment are also noted ...
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