![]() ![]() Therefore, we use the annual average depreciation rate, a new concept that considers accumulated depreciation when estimating replacement costs of assets. Therefore, the economic depreciation rate does not consider firm-specific differences or the possibility of changes over time. The economic depreciation rate is the depreciation rate determined at a specific point of time in the process of estimating capital stocks, and the same fixed values are then applied to entire firms and time periods. (2007) is similar to that used by Hyun and Pyo (1997) in their estimation of capital stocks. The economic depreciation rate adopted by Hong et al. (2007) use the economic depreciation rate to calculate the replacement costs of assets. Improvement in the estimation of the replacement costs of assets hinges on the method of calculating depreciation rates. This method is better than others because prices of preferred stocks are not easily available due to less frequent transactions. We estimate the values of preferred stocks following Lindenberg and Ross (1981) and Summers (1981), and divide average dividends by average dividend ratio. We also make several important improvements, such as in the estimation of values of preferred stocks and replacement costs of assets. We compare existing methods and the differences in estimation results. Our estimation method follows Lindenberg and Ross (1981) and Hoshi and Kashyap (1990), who further developed the methodology of Tobin (1969). Given the limitations of this stream of research, this study aims to estimate an accurate Tobin’s Q of Korean listed firms in the longest period possible. ![]() Despite its theoretical and empirical importance, very little attempt is done to estimate Tobin’s Q over a long-term period, particularly in Korea. However, even the partial estimation of Tobin’s Q tends to be done only for specific periods. ![]() Alternatively, Tobin’s Q has been partially estimated, for example, by using either the market value of liabilities or the replacement costs of assets (Kang et al. This ratio is a simple method that divides the sum of market capitalization at year-end and the book value of liabilities by the book value of assets (Black et al. However, because of the difficulty in computation, the ratio is frequently replaced by the market-to-book (M/B) ratio. In several empirical studies, Tobin’s Q has been adopted as a key independent or dependent variable (Morck et al. Therefore, many researchers tend to use book values rather than market values of liabilities and assets. Estimating replacement costs also requires consideration of various factors related to different types of assets, which complicates the computation. The market values of stock and liabilities are difficult to estimate. However, calculating Tobin’s Q accurately is not easy. Replacement costs represent the amount it would cost to replace an asset at its current price. The market value of a firm’s assets is obtained from the sum of the market values of stock and liabilities. ![]() This ratio constructs FV by using the ratio of market values of liabilities and stock to replacement costs of assets. Currently, Tobin’s Q ratio (aka Tobin’s Q) (1969) is the most widely adopted measurement. Accordingly, scholars have improved the methodological precision in their estimates of FV. Firm value (hereafter FV) calibrates the efficiency of signaling a firm’s performance in the market, forecasts expected yields of investments, and assesses the realized efficiency of investments. ![]()
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