Tobin q empirical evidence

Empirical Evidence:

Researchers have found that investment in new capital goods do
tend to rise when the stock market rises and fall when the market
falls although the relationship is not always strong. Reason being
that stock prices reflect many assets besides capital, such as patents
a firm holds or the reputation of a firm’s products. Thus changes in
stock prices are imperfect measures of the changes in the market
value of capital.

Tobin's q ratio is in fact similar to the neoclassical theory. We saw
3 factors affected the desired capital stock – the expected future
marginal product of capital MPk; the real interest rate, r; and the
purchase price of new capital, Pk. Each of these factors also affect
Tobin’s q. An increase in the MPk increase in expected future
earnings of the firm and this raises the stock market value of the
firm and thus q. A reduction in r also tend to increase stock prices
as financial investors substitute away from low-yielding bonds and
bank deposits and buy stocks instead. A decrease in the purchase
price of capital reduces the denominator of the q ratio and thus
increases q.