Mutant Q – The Superbug Infecting Foundational Studies on Entrenchment, Staggered Boards, and Activism

March 14, 2019

Sometimes you need to get into the fundamentals to understand if your belief system is sound.

In corporate governance literature of the last two decades, there is no more fundamental concept than Tobin’s Q, which legions of law professors have used as a proxy for firm value.  Based on regression analyses examining variations in Tobin’s Q, they have made definitive pronouncements about any number of corporate governance topics, from staggered boards to the value of activism.  Yet tracing the evolution of Tobin’s Q to its current state—a state completely alien to the original conception—reveals a twisted tale, proceeding like an epidemiological disaster in which Tobin’s Q transforms from an innocent and useful organism in macroeconomics to an unrecognizably mutated and widespread disease in corporate governance literature, infecting policies and practices throughout the corporate governance world.

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This article was republished as, “Mutant Q—Foundational Studies on Entrenchment, Staggered Boards, and Activism” by the Harvard Law School Forum on Corporate Governance and Financial Regulation.