Investment and Value: A Neoclassical Benchmark

Do investment models …t …rm-level data? - which model …ts best? To answer this question we estimate alternative models using Compustat data. We …nd that both a version of the Hayashi (1982) and a model with decreasing returns to scale in production …t …rm-level data very well. Our estimates suggest that there is substantial measurement error in Q. This measurement error implies that the investment-cash-‡ow regressions that +� � =