TY  - JOUR
AU  - Cooper,Russell
AU  - Ejarque,Joao
TI  - Exhuming Q: Market Power vs. Capital Market Imperfections
JF  - National Bureau of Economic Research Working Paper Series
VL  - No. 8182
PY  - 2001
Y2  - March 2001
UR  - http://www.nber.org/papers/w8182
L1  - http://www.nber.org/papers/w8182.pdf
N1  - Author contact info:
Russell Cooper
Department of Economics
The Pennsylvania State University
611 Kern
State College, PA 16802
E-Mail: russellcoop@gmail.com

Joao Ejarque
Institute of Economics
University of Copenhagen
Studiestraede 6
1455 Copenhagen, DENMARK
E-Mail: Joao.Ejarque@econ.ku.dk
AB  - Evidence of the statistical significance of profits in Q regressions remains one of the principal findings in the empirical investment literature.  This result is frequently taken to support the view that capital market imperfections are an important element for understanding investment.  This paper challenges that conclusion.  We argue that allowing the profit function at the firm level to be strictly concave, reflecting, for example, market power, is sucent to replicate the Q theory based regression results in which profits are a significant factor determining investment.  To be clear, our ability to replicate the existing results does not require the specification of any capital market imperfections. Thus the friction that explains the statistical significance of profits could be market power by sellers rather than capital market imperfections.
ER  -