On the incidence of deferred taxes, intangibles and non-linearities in the relationship between Tobin's Q and ROI

Four new elements are introduced: the incidence of deferred taxes on this relationship, either directly or through their impact on ROI; the potential non-linear nature of the ROI/Q relationship; the extension of the intangibles concept of Landsman and Shapiro (1995) to cover also the firm's human capital asset and agency components; an examination of the separate effect on ROI of the factors hypothesized to explain Q. Our results strongly support the use of ROI as a good measure of economic performance.