Multifactor Model for Estimation of Tobin’s Q for Listed Firms

Abstract

This research examines the effect of firms efficiency in asset utilzation(ROA), leverage(debt/equity ratio), dividend decision and corporate governance on the firm value measured through Tobin’s Q for listed Indian firms in FMCG, Auto and IT sector using quarterly accounting data collected for period from 2004 through 2017. The study has examined a multi-factor model by applying multiple linear regression to identify the model for estimation of Tobin’s Q. The results reveal that the explanatory variables for predicting firm value for the auto sector are ROA, debt equity ratio and dividend payout ratio, for the FMCG sector, debt equity ratio, dividend payout ratio and governance score and for the IT sector are ROA, debt equity ratio, dividend payout ratio and governance score are the statistically significant explanatory variables for modelling Tobin’s Q. As the statistically significant predictors for Tobin’s Q are different for IT, auto and FMCG sectors, a key implication of this study is that it is not very useful to apply a common model for predicting Tobin’s Q for all firms.