Tobin's Q of Honda Motor Company, Limited and its Determinants from 2013 to 2017

Khoo, Shi Shean (2019): Tobin's Q of Honda Motor Company, Limited and its Determinants from 2013 to 2017.

Abstract

A firm’s market capitalization can be influenced by internal or external factors. This may be caused by and linked to corporate governance failures and the changes of macroeconomic factors. This paper attempted to investigate the internal determinants (corporate governance index, return on assets, return on equity, Altman Z) and external determinants (gross domestic product, unemployment rates and exchange rate) of Tobin’s Q and how they influence Tobin’s Q of Honda Motor Company, Limited from 2013 to 2017. The importance of corporate governance will also be delivered indirectly in this study. Ordinary Least Square analysis (OLS) was used to study the significance of independent variables towards Tobin’s Q. The findings showed that Altman Z (internal determinant) was positively significant to the Tobin’s Q ratio and influenced Tobin’s Q the most. This study also suggested the firm to focus on its corporate governance principle, which is transparency to avoid bankruptcy.

• Item Type: MPRA Paper
• Language: English
• Keywords: Tobin’s Q, market capitalization, Altman Z, corporate governance
• Subjects: B - History of Economic Thought, Methodology, and Heterodox Approaches > B2 - History of Economic Thought since 1925 > B22 - Macroeconomics; G - Financial Economics > G3 - Corporate Finance and Governance; G - Financial Economics > G3 - Corporate Finance and Governance > G34 - Mergers ; Acquisitions ; Restructuring ; Corporate Governance; O - Economic Development, Innovation, Technological Change, and Growth > O1 - Economic Development; O - Economic Development, Innovation, Technological Change, and Growth > O1 - Economic Development > O16 - Financial Markets ; Saving and Capital Investment ; Corporate Finance and Governance

References

Adolf A. Berle & Gardiner C. Means (1932). The Modern Corporation and Private Property. Transaction Publisher.

Altman, E. I., & Hotchkiss, E. (1993). Corporate financial distress and bankruptcy.

Apergis, N., Sorros, J., Artikis, P., & Zisis, V. (2011). Bankruptcy probability and stock prices: The effect of Altman Z-score information on stock prices through panel data. Journal of Modern Accounting and Auditing, 7(7), 689.

Bai, C. E., Liu, Q., Lu, J., Song, F. M., & Zhang, J. (2004). Corporate governance and market valuation in China. Journal of comparative economics, 32(4), 599-616.

Bhagat, S., & Bolton, B. (2008). Corporate governance and firm performance. Journal of corporate finance, 14(3), 257-273.

Borgia, F. (2005). Corporate governance & transparency role of disclosure: how prevent new financial scandals and crimes. American University Transnational Crime and Corruption Center School of International Service.

Brown, L. D. & Caylor, M. L. (2004). Corporate governance and firm performance. Available at SSRN 586423.

Darrat, A. F., Gray, S., Park, J. C., & Wu, Y. (2016). Corporate governance and bankruptcy risk. Journal of Accounting, Auditing & Finance, 31(2), 163-202.

Dignam, A., & Galanis, M. (2008). Corporate governance and the importance of macroeconomic context. Oxford Journal of Legal Studies, 28(2), 201-243.

Edward, A. I. (1983). Corporate Financial Distress: A Complete Guide to Predicting, Avoiding, and Dealing with Bankruptcy.

Fisher R.A. (1958). Statistical methods for research workers. (13th edition). London, Oliver and Boyd (Original work published 1925).

FocusEconomics. (n.d.). Japan Economy - GDP, Inflation, CPI and Interest Rate. Retrieved from https://www.focus-economics.com/countries/japan

Hiroko Tabuchi (2014). Air Bag Flaw, Long Known to Honda and Takata, Led to Recalls. The New York Times. Retrieved from https://www.nytimes.com/2014/09/12/business/air- bag-flaw-long-known-led-to-recalls.html

Honda Global (2019). Corporate Governance. Retrieved from https://global.honda/about/corporate-governance.html

Hu, Z., & Li, L. (1998). Responses of the stock market to macroeconomic announcements across economic states. International Monetary Fund.

Jensen, M. 1993. The modern industrial revolution, exit, and the failure of internal control systems. Journal of Finance 48 (July): 831-880.

Justine O’ Brien: “Governing the Corporation Regulation and Corporate Governance in an Age of Scandal and Global market” Publisher: John Wiley & Sons Ltd (Nov 2005) pg64

Jose, M. L., Lancaster, C., Stevens, J. L., & Jennings, J. A. (1996). Stability of excellence: revealed patterns in Tobin's Q-ratios. Journal of Applied Business Research, 12, 83-91.

Kothari, C. R. (2004). Research methodology: Methods and techniques. New Age International.

Kumar, R. (2019). Research methodology: A step-by-step guide for beginners. Sage Publications Limited.

Lajili, K., & Zéghal, D. (2010). Corporate governance and bankruptcy filing decisions. Journal of General Management, 35(4), 3-26.

Lehn, K., Sukesh, P. and Zhao, M. (2004) Determinants of the size and structure of corporate boards: 1935-2000, Working Paper, Katz Graduate School of Business.

Lipton, M., and J. Lorsch. (1992) A modest proposal for improved corporate governance. Business Lawyer 59 (November): 59-77.

Newman, I., Benz, C. R., & Ridenour, C. S. (1998). Qualitative-quantitative research methodology: Exploring the interactive continuum. SIU Press.

Timothy Skyes (2018). US Unemployment Rate: How It Can Affect Stocks. Retrieved from https://www.timothysykes.com/blog/us-unemployment-rate/

Ugur, M., & Ararat, M. (2006). Does macroeconomic performance affect corporate governance? Evidence from Turkey. Corporate Governance: An International Review, 14(4), 325348.

Wolfe, J., & Sauaia, A. C. A. (2014, February). The Tobin q as a company performance indicator. In Developments in Business Simulation and Experiential Learning: Proceedings of the Annual ABSEL conference (Vol. 30).