Abstract
This paper studies the relationship between firm-level intangible capital investment decisions and capital market in China, and addresses a key question: whether Chinese financial market is informative. We develop a simple model associating amortization rate of intangible capital with depreciation rate of physical capital. We find that under normal firm structure in China, organizational capital takes the heaviest proportion from a market perspective, and that external capital investment effect wears out the most quickly, hence requires constant reinvestment. We adjust Tobin’s q value by including the intangible capital in the numerator. Our empirical analysis suggests that adjusted q is more powerful in the prediction of firm investment than traditionalq. We then examine the informativeness of Chinese stock market and find that adjusted q can provide significant information of firms’ future operating performance together with the firms’ fundamentals. This finding benefits both investors and managers.
Published Version
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