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Tobin's Q


Tobin's Q is defined as the ratio between the market value of the firm over the replacement cost of its assets.

\text{TobinQ} = \frac{\text{Marekt value of the firm}}{\text{Replacement cost of assets}}

There're a number of ways to estimate Toin's Q empirically. Gompers, Ishii and Metrick (2003 QJE), following Kaplan and Zingales (1997 QJE), define Tobin's Q as:

The market value of assets divided by the book value of assets (Compustat item 6), where the market value of assets is computed as book value of assets plus the market value of common stock less the sum of the book value of common stock (Compustat item 60) and balance sheet deferred taxes (Compustat item 74). All book values for fiscal year t (from Compustat) are combined with the market value of common equity at the calendar end of year t.1

which gives:

\text{TobinQ}_{i,t} = \frac{\text{Total Assets}_{i,t} + \text{Market Equity}_{i,t} - \text{Book Equity}_{i,t}}{\text{Total Assets}_{i,t}}


  • \text{Total Assets} is the book value total assets as reported
  • \text{Market Equity}=PRCC\_C \times CSHO
  • \text{Book Equity}=SEQ+TXDB+ITCB-PREF and
  • PREF=\text{coalesce}(PSTKRV,PSTKL,PSTK)


Variable Description
PRCC_C Stock price at the calendar year end for a fair cross sectional comparison
CSHO Common shares outstanding
SEQ Shareholder equity
TXDB Deferred taxes
ITCB Investment Tax Credit
PREF Preferred Stock
PSTKRV Preferred stock - redemption value
PSTKL Preferred stock - liquidating value
PSTK Preferred stock - carrying value

Last update: August 14, 2020