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The Real Effects of the Euro: Evidence from Corporate Investments

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  • Bris, Arturo
  • Koskinen, Yrjö
  • Nilsson, Mattias

Abstract

Existing evidence shows that the Economic and Monetary Union (EMU) has reduced the cost of capital for firms in the euro area. We study the impact of the adoption of the euro in January 1999 by 11 countries in Europe on the firms’ investment rates, and show that the investment results are consistent with reduction in cost of capital. Using corporate data from the 11 EMU countries, as well as from a control sample of 5 non-EMU, European countries, our paper shows that: (i) investments for EMU-firms have grown 2.5% more than for non-EMU firms, after 1999; and (ii) the benefits of the euro accrue especially to small, domestic firms from countries with previously weak currencies.

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Bibliographic Info

Paper provided by C.E.P.R. Discussion Papers in its series CEPR Discussion Papers with number 4521.

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Date of creation: Aug 2004
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Handle: RePEc:cpr:ceprdp:4521

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Keywords: cost of capital; currency union; Economic and Monetary Union (EMU); investments; the euro;

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Cited by:
  1. Tullio Jappelli & Marco Pagano, 2008. "Financial Market Integration under EMU," European Economy - Economic Papers 312, Directorate General Economic and Monetary Affairs (DG ECFIN), European Commission.
  2. Bris, Arturo & Koskinen, Yrjö & Nilsson, Mattias, 2011. "The euro and corporate financing," Research Discussion Papers 6/2011, Bank of Finland.
  3. Saumitra, Bhaduri & Sunanda, Rathi, 2012. "Bank firm nexus and its impact on firm performance: an Indian case study," MPRA Paper 38000, University Library of Munich, Germany.
  4. Sohnke M. Bartram & G. Andrew Karolyi, 2002. "The Impact of the Introduction of the Euro on Foreign Exchange Rate Risk Exposures," Finance 0207005, EconWPA, revised 16 Sep 2002.
  5. Wan, Jer-Yuh & Kao, Chung-Wei, 2008. "The euro and pound volatility dynamics: An investigation from conditional jump process," Research in International Business and Finance, Elsevier, vol. 22(2), pages 193-207, June.

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