Why Does Equity Capital Flow out of High Tobin's q Industries?

Abstract

High Tobin's industries receive more funding from capital markets than low Tobin's industries from 1971 to 1996. Since then, the opposite is true. The key to understanding this shift is that large firms, for which 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 , so that explains the variation of repurchases more than of capital expenditures. Consequently, equity capital flows out of high industries because for these industries stock repurchases are high and issuances are low.