The Q-Theory of Ipos

29 Pages Posted: 12 Nov 2008

See all articles by Boyan Jovanovic

Boyan Jovanovic

New York University - Department of Economics

Peter L. Rousseau

Vanderbilt University - Department of Economics

Date Written: October 2003


We find that new firms real investment responds much more elastically to aggregate Tobin s Q than does that of established firms. On the financial side, IPOs respond more elastically to Tobin s Q than seasoned offerings of securities. The explanation seems to be that a high aggregate Q raises new firms desired investment much more than it raises the desired investment of incumbents. For the period from 1955 to 2001, the Q-elasticity of IPOs is about 1.2, and the elasticity of new-firms investment is about 0.7. These are about 20 times more than is usual in Q regressions. On the other hand, the Q-elasticity of seasoned offerings is actually negative (-0.05), and the elasticity of incumbents investment is 0.04. Though not statistically significant, the average of these estimates is even smaller than is usual.

Suggested Citation

Jovanovic, Boyan and Rousseau, Peter L., The Q-Theory of Ipos (October 2003). NYU Working Paper No. S-MF-03-17, Available at SSRN:

Boyan Jovanovic (Contact Author)

New York University - Department of Economics ( email )

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Peter L. Rousseau

Vanderbilt University - Department of Economics ( email )

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