Abstract
We develop the hypothesis that Tobin's q ratio signals favorable opportunities for a firm to make acquisitions and then undertake an empirical test of this hypothesis within the context of a more general “multicausal” model. The results of this test support our hypothesis. The empirical study is also notable in that our data consists of a representative sample of large manufacturing firms (selection to the sample is not conditional upon merger activity) and the time period covered (1971–1978) postdates the conglomerate merger boom era of the 1960s.
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