The Study of Tobin’s Q Ratio Application and Comparing it with and Ratios in Predicting Equity Returns Yield in Companies Listed in Tehran Security Market

Journal of Accounting Advances (J.A.A)
Vol. 2, No. 1, Summer 2010, Ser. 58/3
 
 
Extended Abstract
 
The Study of  Tobin’s Q Ratio Application and Comparing it with                          and Ratios in Predicting Equity Returns Yield in Companies Listed in Tehran Security Market
 
 
Dr. M. Moradi                                    F. Pourhasan
Ferdowsi University of Mashhad
 
 
Introduction
       The importance of measuring managers’ performance of one department or the whole firm has long; especially from 19th century, received the attention of accountants. Considering the set of modern economic and business conditions, the resultant changes in management new patterns and running organizations, the appearance of new notions and approaches of management control concept and the Agency theory and also the inefficiency of traditional assessment methods made the change and development in Criteria of performance measurement necessary. To do so, various Criteria and methods have been introduced and Tobin’s Q ratio is one of these Criteria. This ratio is the statistic which can be the indicator of firm’s value for investors and can respond to shareholders that to what extent the management involves in increasing their wealth.
 
Research Question
       Now the question is that does Tobin’s Q ratio as an assessing measure of performance show a better image of the future performance of admitted firms in Tehran Stock Exchange comparing to measures such as price-earnings ratio and price-book value ratio?
Methods
       To respond the above question, a 5-year period (2002-2006) was considered. All admitted companies in Tehran Security Market created the statistic society and by applying some limits, 141 qualified companies were finally chosen in this study.
The assessing model used in this research is the model offered by Ohlson  which is tested by Kolin et.al. Ohlson believes that for examining the final fluctuation of explaining extent of independent variables in the studied period, one should use regression method to fit models. Also Harney and Tower followed this assessing model in their research. So to test the proposed assumptions in this research, Pearson correlation coefficient, fitedd multiple regression, T statistic (or possible figures) were used. To analyze the data, SPSS software was used.
 
Results
       Referring to tests and statistical methods, one can claim that in the predicting process of equity return, Tobin's Q ratio has a higher predicting power than price-earnings ratio and price-book value ratio. Price-book value ratio is also in the second rank of this grade.
The results derived from this research are similar to the results of Mr. Harney’s and Tower's research in 2003 and Mr. Smith’s and Wright’s in 2000.
 
Conclusion and Suggestions
       It is recommended to the dear investors in Tehran Stock Exchange not to rely only on firms stock price but also consider other assessing measures of performance in their decisions. Tobin's Q ratio as the assessing measure of performance, besides other measures, can be useful for investors to make a good decision.