The Euro Is Good After All: Corporate Evidence
AbstractIn this paper we study the changes in corporate valuation, investments, and financing choices 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 valuations for large firms in EMU countries, especially in countries that had experienced currency crises. Firm values have also increased for firms that were previously exposed to currency risks irrespective of size. Investments have increased for all firms, but the effects are bigger for large firms and for firms coming from countries with experiences of currency depreciations. The increase in investments has been financed mainly via debt issues. The evidence provided here supports the view that the introduction of the euro has lowered firms' cost of capital by eliminating currency risks among the countries that have adopted the common currency, and by further increasing capital market integration in Europe.
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Bibliographic InfoPaper provided by Stockholm School of Economics in its series Working Paper Series in Economics and Finance with number 510.
Length: 57 pages
Date of creation: 08 Aug 2002
Date of revision:
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Economic and Monetary Union (EMU); the euro; valuation; investment; debt; equity; cost of capital; currency risk;
Other versions of this item:
- Arturo Bris & Yrjo Koskinen & Mattias Nilsson, 2002. "The Euro is Good After All: Corporate Evidence," Yale School of Management Working Papers, Yale School of Management ysm294, Yale School of Management, revised 01 Oct 2008.
- Bris, Arturo & Koskinen, Yrjo & Nilsson, Mattias, 2002. "The Euro Is Good After All: Corporate Evidence," SIFR Research Report Series, Institute for Financial Research 9, Institute for Financial Research.
- 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-ALL-2002-09-21 (All new papers)
- NEP-CBA-2002-09-21 (Central Banking)
- NEP-EEC-2002-09-21 (European Economics)
- NEP-FIN-2002-09-21 (Finance)
- NEP-IFN-2002-09-21 (International Finance)
- NEP-RMG-2002-09-21 (Risk Management)
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- Grubel, Herbert, 2005. "Small country benefits from monetary union," Journal of Policy Modeling, Elsevier, Elsevier, vol. 27(4), pages 509-523, June.
- Pierre-Richard Agenor & Joshua Aizenman, 2008.
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NBER Working Papers
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- Agénor, Pierre-Richard & Aizenman, Joshua, 2011. "Capital market imperfections and the theory of optimum currency areas," Journal of International Money and Finance, Elsevier, Elsevier, vol. 30(8), pages 1659-1675.
- Agenor, Pierre-Richard & Aizenman, Joshua, 2008. "Capital Market Imperfections and the Theory of Optimum Currency Areas," Santa Cruz Department of Economics, Working Paper Series qt7668j94x, Department of Economics, UC Santa Cruz.
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