In existing empirical studies, the Tobin's Q ratio is mostly used as a measure of firm value. Researchers simply use it as a dependent variable and relate it with explanatory variables that determine firm value such as growth, leverage, size in a linear regression. However, even in the simplest case as in the Gordon growth model (constant growth model) with no leverage, this linear relationship does not hold. This paper theoretically derives the Tobin's Q empirical equation based on the Ohlson model. This provides a theoretical foundation for the empirical model. The result shows that most empirical models in existing studies are not theoretically justified. The new theoretical-based model is then applied to listed companies in ASEAN markets to test its empirical validity.

Keywords: Tobin's Q, Ohlson model, Firm value, Valuation.