Tobin's Q approximation as a metric of firm performance: an empirical evaluation

Marketing scholars commonly use Tobin's Q approximation as a metric of firm performance despite criticism that it might provide false positives for marketing-related research questions. Tobin's Q approximation relies on accounting-based information that commonly undervalues intangibles, thus overstating firms' performance in intangibles, such as marketing, human resources, and research and development. Our research empirically demonstrates and confirms the concerns surrounding Tobin's Q as a firm performance metric in the context of an emerging market. Our analysis of 196 publicly traded non-financial Pakistani firms operating in various sectors over a period of five years shows that marketing spending is positively associated with Tobin's Q. In contrast, results are not significant for the alternative market-based firm performance metric, stock return. Our findings cast further doubts on Tobin's Q's reliability as a firm performance metric in the marketing literature and simultaneously contribute to the ongoing discussion on the appropriate selection and use of metrics by marketing scholars.