Criticism

It is usually possible to get an accurate estimate for the market value of a firm's assets by summing the values of the securities that a firm has issued, such as stocks and bonds. It is much more difficult to obtain an estimate of the replacement costs of its assets, unless markets for used equipment exist. Moreover, expenditures on advertising and research and development create intangible assets that may be hard to value. Typically, researchers who construct Tobin's q ignore the replacement costs of these intangible assets in their calculations. For that reason, q typically exceeds 1. Accordingly, it can be misleading to use q as a measure of market power without further adjustment.