Can Tobin's Q value for a firm be negative?

I am calculating Tobin's Q value using Compustat data for firm i and year t. I am using the formula presented in Chung and Pruitt(1994) -

Q = (Market value of equity + liquidation value of prefd stock + DEBT) / Totl Assets

where DEBT = sh term liabilities - short term assets + book value of lg term debt

  • $\begingroup$ No it is not possible for Q to be negative in any normal situation. $\endgroup$
    – Alex C
    Feb 26, 2017 at 4:30
  • $\begingroup$ Thank you Alex. I do find the value to be negative for some (small number) observations in Compustat. I notice that for these observations, the short term asset value is too high and/or long term debt is missing resulting in a negative value of the numerator. Should I consider that as some accounting artifact, or erroneous observation then? $\endgroup$
    – singhalc
    Feb 26, 2017 at 7:13
  • $\begingroup$ @AlexC this is an answer not a comment. $\endgroup$
    – SRKX
    Feb 26, 2017 at 14:53

1 Answer 1


No, it is not possible for Tobin's Q to be negative in any normal situation.

Mathematically it is true that if the 'short term assets' figure is very large (because of a data error or otherwise) the numerator of the fraction could become negative.

To protect against this you might consider only the excess of short term liabilities over short term assets to be included in debt.

In other words I would take

DEBT = MAX(0,sh term liabilities-short term assets)+liq preferred+bk value long term debt

You may want to ask your accounting professor if this seems like an acceptable solution.

  • $\begingroup$ Thank you very much Alex. I am not from the accounting field and am using Compustat for the first time. Your suggestion helps. $\endgroup$
    – singhalc
    Feb 26, 2017 at 17:23

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