The Euro is Good After All: Evidence from Corporate Valuations
AbstractIn this Paper we study the changes in corporate valuation induced by the formation of Economic and Monetary Union (EMU) in Europe. We use corporate-level data from ten countries that adopted the euro, the three EU countries that did not join EMU, as well as Norway and Switzerland. We show that the introduction of the euro has increased Tobin's Q-ratios in EMU countries by 7.4%. The effects prevail even if we account for the decrease in long-term interest rates. The increases in Tobin's Q are larger for firms that are ex-ante expected to benefit more, i.e. firms from countries that had weak currencies and firms that were exposed to intra-European currency risks. Finally, the increases are also more significant for firms that are financially unconstrained. The evidence provided here supports the view that the introduction of the euro has lowered firms' cost of capital in EMU-countries.
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Bibliographic InfoPaper provided by C.E.P.R. Discussion Papers in its series CEPR Discussion Papers with number 3910.
Date of creation: May 2003
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Find related papers by JEL classification:
- F33 - International Economics - - International Finance - - - International Monetary Arrangements and Institutions
- F36 - International Economics - - International Finance - - - Financial Aspects of Economic Integration
- G32 - Financial Economics - - Corporate Finance and Governance - - - Financing Policy; Financial Risk and Risk Management; Capital and Ownership Structure; Value of Firms; Goodwill
This paper has been announced in the following NEP Reports:
- NEP-CFN-2003-07-13 (Corporate Finance)
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- Pungulescu, Crina & Tümer Alkan, Günseli, 2009. "The Euro And Corporate Valuations: The Case Of Greece," Studii Financiare (Financial Studies), Centre of Financial and Monetary Research "Victor Slavescu", vol. 13(1), pages 131-152, March.
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- Baggs, Jennifer Brander, James A., 2005. "Trade Liberalization, Profitability, and Financial Leverage," Analytical Studies Branch Research Paper Series 2005256e, Statistics Canada, Analytical Studies Branch.
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