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  • Suggestion for Negative market value of the firms and negative Tobin's q

    Hi all,
    I calculate Tobin's Q as the ratio of firm's market value (Vit) to gross capital stock(ppegt), where market value Vit as the market value of outstanding equity (Compustat items prcc _ f times csho ), plus the book value of debt (Compustat items dltt + dlc), minus the firm’s current assets (Compustat item act ), which include cash, inventory, and marketable securities.

    This approach generates negative Vit when act>(dltt+dlc+(prcc_f*csho)) and thereby negative Tobin's q for 34000+ observation. What is the standard norm of fixing the negative Vit? Should I set firm’s excess current assets ( act) over book value of debt (dltt + dlc) to zero or leave as it is?

    Code:
    * Example generated by -dataex-. To install: ssc install dataex
    clear
    input int fyear long gvkey str30 conm float(act csho prcc_f dlc dltt Vit)
    2017  27301 "IMPERIAL GINSENG PRODS LTD"     15.483    7.21      1      .24    2.303      -5.73
    2017   9323 "PARAGON TECHNOLOGIES INC"       29.699   1.685    1.2    7.836        0    -19.841
    2017  17501 "TRUETT-HURST INC"               23.829   4.427   2.08    7.792    3.065  -3.763841
    2017 133727 "CHINA EDUCATION RESOURCES"      11.244  47.365   .095     1.63        0  -5.114325
    2017 179147 "YEW BIO-PHARM GROUP INC"        35.434  51.875   .195    6.099        0 -19.219376
    2017  12545 "HARTE HANKS INC"               103.206    62.1  .9487     .506     .486  -43.29974
    2017  20529 "EASTERN PLATINUM LTD"           34.665  92.599    .33        0        0 -4.1073303
    2017 112774 "ECHELON CORP"                   29.369    4.52 5.5388        0        0  -4.333624
    2017   3275 "COMMUNICATIONS SYSTEMS INC"     45.466   8.974   3.56        0        0  -13.51856
    2017  18582 "GOODFELLOW INC"                153.395   8.507   8.33   52.448     .055 -30.028687
    2017  26520 "SCHMITT INDUSTRIES INC/OR"      10.018   3.995   2.29        0        0  -.8694496
    2017  13997 "TORSTAR CORP  -CL B"           203.135  80.854   1.71        0        0 -64.874664
    2017 149683 "CHINA AUTOMOTIVE SYSTEMS INC"  532.603  31.644    4.8  156.559     .306 -223.84683
    2017 187375 "RMG NETWORKS HOLDING CORP"      14.247  11.156    .82     1.25        0   -3.84908
    2017  10380 "SUNLINK HEALTH SYSTEMS INC"     22.621   9.163   1.66     6.71        0  -.7004204
    2017 275264 "AKERS BIOSCIENCES INC"           7.776  44.221   .134        0        0 -1.8503857
    2017 183224 "CHINANET ONLINE HOLDINGS"         16.9  13.983   1.09     .765     .134  -.7595291
    2017  65461 "TEFRON LTD"                     47.862   11.87     .8   14.185   11.054    -13.127
    2017  18892 "TAKUNG ART CO LTD"              49.567  11.189 2.5101    7.693        0 -13.788492
    2017  10981 "ESSENDANT INC"                1512.729  37.624   9.27    6.079  492.044  -665.8314
    2017 153128 "HUDSON GLOBAL INC"              97.043  31.159   2.25    7.155     .052  -19.72825
    2017  28924 "BARNES & NOBLE INC"            1098.68  72.653   5.55        0    158.7 -536.75586
    2017 287106 "GOBIMIN INC"                    31.776  50.005    .39    1.265        0  -11.00905
    2017   2504 "UNISYS CORP"                    1389.5    50.5   8.15     10.8    633.9   -333.225
    2017 176082 "PHARMA-BIO SERV INC"            19.537   23.09     .5     .014      .06  -7.918001
    2017   8213 "OWENS & MINOR INC"            2181.905  61.476  18.88   16.619  900.744 -103.87512
    2017 187294 "CENTURY GLOBAL COMMODITIES"     25.236  98.495     .2        0        0  -5.536999
    2017  20269 "CALDWELL PARTNERS INTL INC"     27.206  20.405   1.06        0        0    -5.5767
    2017 176661 "JA SOLAR HOLDINGS CO LTD"     1533.587  47.585   7.46  611.722  482.424  -84.45694
    2017  25923 "HG HOLDINGS INC"                28.528   14.92    .87        0        0   -15.5476
    2017   7171 "MCKESSON CORP"                   37136     202 140.87     1129     6751  -800.2617
    2017  29951 "BUHLER INDUSTRIES INC"         254.894      25   4.45   12.553        0   -131.091
    2017 188855 "CAFEPRESS INC"                  38.748  16.932 1.8454        0        0   -7.50169
    2017   3465 "CONTINENTAL MATERIALS CORP"     47.051   1.682     19      3.5        0 -11.592999
    2017   4194 "EASTMAN KODAK CO"                  958    42.6    3.1        4      399    -422.94
    2017  12471 "WORLD FUEL SERVICES CORP"       3940.4    67.7  28.14     25.6    884.6 -1125.1221
    2017 137874 "SMTC CORP"                      59.188  16.993 1.8906   14.365    6.089  -6.607037
    2017  15016 "PHOENIX CANADA OIL CO LTD"       9.398   4.887   1.45        0        0 -2.3118496
    2017 138501 "CERAGON NETWORKS LTD"          210.812  78.045   1.98        0        0   -56.2829
    2017  25935 "GULF RESOURCES INC"            241.513  46.804   1.47     .203    2.304  -170.2041
    2017 180597 "STR HOLDINGS INC"               18.227  19.918  .2301     .454        0 -13.189867
    2017 273726 "SEADRILL LTD"                     2252 504.519  .2313      519      799  -817.3047
    2017   2811 "CASTLE (A M) & CO"             253.815   3.734    .11    5.972  210.051 -37.381268
    2017   8336 "PARADISE INC"                   20.491     .52  28.03     .541        0  -5.374399
    2017 158055 "DYADIC INTERNATIONAL INC"       49.616  28.328   1.39        0        0 -10.240082
    2017   3962 "NORTECH SYSTEMS INC"            37.767   2.739   3.86    1.298   14.078 -11.818459
    2017 184182 "JINKOSOLAR HOLDING CO"        3013.672  33.037  24.05 1860.411  187.002 -171.71936
    2017 184585 "NOVA LIFESTYLE INC"             74.917  28.192    2.4        0    4.202 -3.0541916
    2017  32677 "SPARK NETWORKS SE"              26.489    1.08  12.65    7.033        0  -5.794002
    2017 178387 "OMNITEK ENGINEERING CORP"        1.607  20.281  .0651      .03        0 -.25670695
    2017 163949 "SAHARA ENERGY LTD"              10.912 289.684    .03        0        0 -2.2214804
    2017  64488 "EURO TECH HOLDINGS CO LTD"       9.616   2.062   3.31     .097        0   -2.69378
    2017  31418 "PROPHASE LABS INC"              28.919   11.13   2.17        0        0  -4.766899
    2017  10619 "TOROTEL INC"                     6.062   5.996    .66    1.706      .13  -.2686398
    2017   3184 "CCOM GROUP INC"                 29.383   9.155    .65   14.745     .646   -8.04125
    2017  63904 "CIA BRASILEIRA DE DISTRIB"    10029.89 166.666  23.57  458.923 1007.518  -4635.131
    2017  24837 "ALLIED HEALTHCARE PRODS INC"    13.198   4.014   2.89        0        0   -1.59754
    2017  24204 "INSIGNIA SYSTEMS INC"           17.635  11.914 1.1899        0        0 -3.4585314
    2017  22789 "SINO AGRO FOOD INC"            228.549  29.262    .88   38.908   17.135 -146.75543
    2017  24142 "DELTA TECHNOLOGY HOLDINGS"      86.668  11.062   1.73   66.414        0 -1.1167374
    2017  31424 "CHINA YUCHAI INTERNATIONAL"   2460.535  40.858     24  245.921    4.056  -1229.966
    2017 111535 "SAKER AVIATION SERVICES INC"     4.628  32.118  .1225     .345     .113 -.23554444
    2017 152290 "ORSU METALS CORP"                6.436  35.719   .165        0        0  -.5423641
    2017 178327 "CHINA XD PLASTICS CO LTD"     1473.046  49.728    4.6  775.396  114.209  -354.6923
    2017 180145 "FORBES ENERGY SERVICES LTD"     71.529   5.336    .01    7.566   51.288 -12.621643
    2017 178795 "AGRIA CORP -ADS"                415.46  55.058   .849   48.191   95.508 -225.01675
    2017  25726 "CPI AEROSTRUCTURES INC"        120.382   8.864   8.95   24.848    7.019  -9.182198
    2017   5165 "GIGA-TRONICS INC"                7.423  10.313    .33    2.051     .062 -1.9067094
    2017  21802 "PROTEON THERAPEUTICS INC"        43.48  17.675    1.9        0        0  -9.897503
    2017  20517 "LIMBACH HOLDINGS INC"           166.26   7.504  13.83   14.138   20.556 -27.785675
    2017 112030 "CUMULUS MEDIA INC"              393.62  29.307   .075        0        0   -391.422
    2017 126496 "CARTESIAN INC"                  14.969   9.447   .163    7.663        0  -5.766139
    2017  64021 "HOPTO INC"                       1.555   9.804   .137        0        0 -.21185207
    2017 264713 "INFOSONICS CORP -OLD"           11.979   3.378 1.4371        0        0  -7.124476
    2017   4467 "EVANS & SUTHERLAND CMP CORP"    17.077  11.353    .99     .224     1.54   -4.07353
    2017  25711 "ESCALON MEDICAL CORP"            4.155   7.551    .21     .795        0 -1.7742902
    2017 105709 "CABO DRILLING CORP"             11.828  93.868   .015    4.692     .052   -5.67598
    2017 178201 "VITAMIN SHOPPE INC"            279.454  24.022    4.4   12.558  127.769 -33.430214
    2017  20646 "ORVANA MINERALS CORP"           66.339 136.623    .25   16.755    6.028 -9.4002495
    2017  24428 "ADDVANTAGE TECHNOLOGIES GP"     32.419  10.226   1.38    4.189    2.095  -12.02312
    2017 160809 "CYCLACEL PHARMACEUTICALS"       25.974  11.997   1.74        0        0  -5.099222
    2017  18844 "SHARING ECONOMY INTL INC"       22.926   2.528   7.58    3.168        0 -.59576035
    2017  27920 "VICAL INC"                      76.317  21.802   1.83        0        0 -36.419342
    2017  22138 "TANTECH HOLDINGS LTD"           89.245  28.703   2.58   12.185        0 -3.0062714
    2017  19753 "RUBICON PROJECT INC"           304.656  50.239   1.87        0        0 -210.70908
    2017 166272 "ATHABASCA MINERALS INC"          6.545  33.304    .14     .456     .029   -1.39744
    2017  25357 "FINISH LINE INC  -CL A"        462.138   40.37  10.62        0        0  -33.40863
    2017 148772 "CBAK ENERGY TECHNOLOGY INC"     85.244  26.223  1.475   14.636    19.49  -12.43908
    2017   8486 "TUTOR PERINI CORP"            3074.392  49.781  25.35   30.748  705.528 -1076.1678
    2017  61030 "DESWELL INDUSTRIES INC"         68.905  15.885   3.12        0        0   -19.3438
    2017  25186 "STEIN MART INC"                304.831  47.978    .68   13.738  142.387 -116.08095
    2017  18786 "PLEDGE PETROLEUM CORP"           8.625 268.559  .0041     .003        0  -7.520908
    2017 106915 "IMAGING DYNAMICS CO LTD"        19.593  58.858   .025   12.035    5.472  -.6145504
    2017 178413 "FITLIFE BRANDS INC"               6.32  10.682  .2442    2.365        0 -1.3464556
    2017  29698 "SIGMATRON INTERNATIONAL INC"    120.03   4.215   6.78    2.976   41.082   -47.3943
    2017  65867 "MCCOY GLOBAL INC"               46.529  27.684   1.39     4.93        0   -3.11824
    2017 177734 "CHINA ADVANCED CONSTR MATLS"    76.735   2.388    2.5   31.713        0    -39.052
    2017 106336 "EUROCONTROL TECHNICS GRP INC"    9.748   90.75    .07        0        0    -3.3955
    2017   4903 "FRIEDMAN INDUSTRIES INC"        59.979   7.009   5.87        0        0  -18.83617
    2017  62396 "IDT CORP"                      371.117  24.838  14.81        0        0  -3.266235
    end

  • #2
    Have you checked the units (millions or thousands) in which all these variables are measured? Especially, you need to check the variable csho and the act variable as these two are the primary drivers of the negative values in your dataset. If the values are all in the same units, then these companies are already in financial distress and your research design will guide you whether to drop them or retain them.
    Regards
    --------------------------------------------------
    Attaullah Shah, PhD.
    Professor of Finance, Institute of Management Sciences Peshawar, Pakistan
    FinTechProfessor.com
    https://asdocx.com
    Check out my asdoc program, which sends outputs to MS Word.
    For more flexibility, consider using asdocx which can send Stata outputs to MS Word, Excel, LaTeX, or HTML.

    Comment


    • #3
      Thanks, professor Shah.

      Comment

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