When Tobin's q is equal to zero, the market is signaling that a firm should buy more capital.

Question

Quizplus · Accepted Answer

When Tobin's q is equal to zero, it means that the market value of a company's assets is equal to the replacement costs of those assets. In other words, the company is not generating any economic profit or abnormal returns. This does not necessarily mean that the company should buy more capital, as it may not have profitable investment opportunities or may be better off returning value to shareholders through dividends or share buybacks.

When Tobin's Q Is Equal to Zero, the Market Is