How to calculate Tobin’s Q from Compustat?
Posted: 23 January 2013 06:15 AM   [ Ignore ]
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Dear Forum,

I Need to calculate Tobin’s Q using Compustat Data.

For the numerator, I would use:

market value of equity (csho*prcc_f) + book value of debt (dltt+dlc)

Here I am struggling with the preferred stock - include?

For the denominator I would use:

total assets (at)

However, the denominator should be replacement value. I am furthermore asked to use this Definition of q: see attachment

I would be glad to have some opinions on that. Maybe some of you already calculated Tobin’sQ from Compustat and can share the method and variables used.
Thanks

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Posted: 23 January 2013 10:31 AM   [ Ignore ]   [ # 1 ]
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hi Chris,

I have the impression that more recent papers compute Tobin’s q as the ratio of the market value of assets (market cap of equity + book value of debt) divided by the book value of assets, simply ignoring the replacement value. It is probably the case that the book value is ‘statistically speaking’ just as good as the replacement value, which is high effort to estimate.

best regards,

Joost

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