Tobin's Q at the Canadian Pacific Railway, 1890-2016: An Historical Examination of the Efficacy of Strategy

Abstract

Tobin’s Q was studied for 127 years at the Canadian Pacific Railway (CPR) with qualitative and quantitative methods. Restrictive government-imposed freight rates, competition from trucks and cars, and changes to the demand for railway services led the CPR to diversify into unrelated businesses. CPR’s modified Q value was explained positively and significantly by its profitability (net income divided by total revenue) and negatively and significantly by its diversification strategy (percent of sales from unrelated businesses). The average modified Q value was 0.98 over the 127 years.