Tobin's Q calculation using Compustat

Question

I am calculating tobin's Q every quarter using the CRSP/Compustat quarterly dataset. Unfortunately, there are many missing values for the variables used in the tobin's Q formula. for example, if current asset (actq) is missing, there is no tobin's Q. Can I just set/assume this to be 0 and carry on with the computation?

Answer 1

Compustat data is idiosyncratic depending on the data model. In its current form, it is a culmination of legacy data models for industrials, utilities, and banks. The industrials data model is the standard throughout the merged CRSP database as well as Xpressfeed. So the short answer is no, one cannot assume 0 in the presence of an N/A value.

To your example, ACT and ACTQ are not available for banks and similar financial institutions. Thus, in the case of banks, Tobin's Q will not have the same meaning as for other companies since banks do not really have the same operating model as other businesses (e.g., cash received into deposit accounts is held as a liability instead of an asset).

In fact, it may be advisable to define Tobin's Q differently for banks. As an alternative, it is common to compare tangible assets with the total market values of all equity plus liabilities. Otherwise, you may use Assets - Total (AT / ATQ) or sum up the individuals accounts usually found under current assets (i.e., Cash & Equiv; Inventories; Receivables; and Other Current Assets).

Also, it is possible that N/A will be encountered due to incomplete releases and regulatory filings. In this case, it is usually considered best practice to fallback to the most available quarterly or annual value.

A final caveat to the fallback mechanism is that not all equivalently named annual and quarterly items have the same definition. For examples Non-current Assets (AO / AOQ) are comprised of different entries on quarterly and annual basis.

Please let me know if this helps.