Abstract
AbstractHigh Tobin’s $q$ industries receive more funding from capital markets than low Tobin’s $q$ industries from 1971 to 1996. Since then, the opposite is true. The key to understanding this shift is that large firms, for which $q$ is more a proxy for rents than investment opportunities, have become more important within industries. For these firms, repurchases but not capital expenditures increase in the cross-section with $q$, so that $q$ explains the variation of repurchases more than of capital expenditures. Consequently, equity capital flows out of high $q$ industries because for these industries stock repurchases are high and issuances are low.
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