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assets. Such a ratio has several interpretations.  First, high q values signal that such firms are earning economic rents.  Thus, it signals profitable investment opportunities within a firm or industry.   From this perspective, Chart IX indicates that the market places higher valuations on radio properties and operations than those of other companies, such as those reflected in the S&P 500 median market-to-book values.  Indeed, the market-to-book ratios of the radio companies exceeded those of the S&P 500 companies in all of the last 17 quarters, as shown in Chart IX.  Second, for values of the ratio greater than unity, it may indicate that the relevant market is not perfectly competitive.24 For example, a high q ratio value may reflect the ability of a radio station owner to create a format market for itself, which may lessen competitive pressures, at least until future competition catches up.  

4.6Stock Market Returns

Quarterly stock returns of the publicly-traded radio and S&P 500 companies are calculated by including their cash dividends in the return calculation.25  Therefore, the return measure reflects both stock price appreciation and the return of cash in the form of dividends to shareholders.  Chart X reports the median quarterly stock returns of the two groups of companies.  The chart suggests that, while the typical radio company’s returns have varied more than that of the typical S&P 500 company, radio company stocks have overall outperformed the broader market, as reflected in the S&P 500 median stock returns.  The greater volatility of the radio companies’ stock market returns is related to the greater leverage of (greater use of debt by)

( E. Lindenberg and S. Ross, “Tobin’s q Ratio and Industrial Organization,” Journal of Business 54: 1-32.  W. Marshall, “Tobin’s q and the Structure-Performance Relationship,” American Economic Review 74: 1051-1060. Additionally, the difficulty of new entry and the weakness of substitutes for radio advertising further indicate a lack of perfect competition.

( Specifically, this ratio is computed as follows: ([{ending share price + dividends per share}/ {beginning share price}]-1) x 100, which is equal to price appreciation plus dividend yield.

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