Exit, selection, and the value of firms

This paper studies a competitive dynamic model with firm level uncertainty and derives implications for the distribution of firm values and Tobin's q. Allowing for entry and exit, the model determines endogenously the degree of selection. A consequence of this selection is that average industry...

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Bibliographic Details
Published inJournal of economic dynamics & control Vol. 16; no. 3; pp. 621 - 653
Main Author Hopenhayn, Hugo A.
Format Journal Article
LanguageEnglish
Published Amsterdam Elsevier B.V 01.07.1992
Elsevier
Elsevier Sequoia S.A
SeriesJournal of Economic Dynamics and Control
Subjects
Economic theory
Effects
Firm value
Input output analysis
Investment policy
Market equilibrium
Profitability
Stochastic models
Studies
Uncertainty
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Summary:This paper studies a competitive dynamic model with firm level uncertainty and derives implications for the distribution of firm values and Tobin's q. Allowing for entry and exit, the model determines endogenously the degree of selection. A consequence of this selection is that average industry q values are biased above one. As parameters describing the technology and firm level uncertainty are changed, the equilibrium distribution for q values changes. This comparative statics is developed in the paper.
Bibliography:ObjectType-Article-2
SourceType-Scholarly Journals-1
ObjectType-Feature-1
content type line 23
ISSN:0165-1889
1879-1743
DOI:10.1016/0165-1889(92)90052-G