Hey @ Anonymous Pile of Poo
1. Statement
What one should do, is create the Tobin's Q Fraction on the left hand side --> to verify the respective effect
One can rewrite the equation like this: --> subtract log(book value) on both sides
log(market value) – log(book value) = β0 + β1start + β2complete + (α1–1)log(book value) + dummies +ε
The formula of Tobin’s q -->the ratio of market value and book value
Market Value / Book Value Assets
Further, one can still remember from QM1 that log(x) - log(y) = log(x/y) --> as a result, the left hand side of the above equation log(market value) – log(book value) --> log(Tobin’s q)
The final equation would be:
log(Tobin’s q) = β0 + β1start + β2complete + (α1–1)log(book value) + dummies +ε
Finally, based on the coefficients of the other independent variables (including book value), the coefficients of both dummies (start- and complete-dummies) can be interpreted in terms of Tobin’s q and market value.
The respective values do not matter (e.g. H0:a1=1 vs. HA:a1„1 )
Claim I) is incorrect
However, one can see that the above equation implies that Tobin’s q does, in fact, depend on the book value, unless –1 equals 0, i.e. the coefficient of book value is equal to 1 (H0:a1=1)
Claim II) is correct: coefficient of log(book value) has to be equal to 1 (as predicted to by the null hypothesis).
I hope this helps.
Your Success Formula Team.