Excess Capacity, Marginal q, and Corporate Investment Journal Article

Overview

abstract

• ABSTRACTTheory posits that when managers anticipate excess capacity, average q becomes a biased estimator of marginal q as the potential for underutilizing new capital reduces the marginal benefit of investing. After correcting for this source of measurement error, the explanatory power of Tobin's q substantially improves in time‐series and cross‐sectional regressions as well as in out‐of‐sample tests. These findings, together with a secular erosion in capacity utilization, help explain why corporate investment rates have been declining for decades despite average q increasing significantly. Our analysis indicates that economic rigidities have contributed to the persistent erosion in capacity utilization.

CU Boulder Authors

• Ikenberry, Dave

publication date

• June 1, 2025

Date in CU Experts

• January 16, 2026 3:02 AM

Full Author List

• GRULLON G; IKENBERRY DL

author count

• 2

published in

• Journal of Finance  Journal

Other Profiles

International Standard Serial Number (ISSN)

• 0022-1082

Electronic International Standard Serial Number (EISSN)

• 1540-6261

Digital Object Identifier (DOI)

• https://doi.org/10.1111/jofi.13439

Additional Document Info

start page

• 1533

end page

• 1592

volume

• 80

issue

• 3