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The Euro and Corporate Valuations

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  • Bris, Arturo

    ()
    (Yale School of Management)

  • Koskinen, Yrjö

    ()
    (Dept. of Finance, Stockholm School of Economics)

  • Nilsson, Mattias

    ()
    (Stockholm Institute for Financial Research)

Abstract

In this paper we study the changes in corporate valuations induced by the adoption of the euro as the common currency in Europe. We use corporate-evel data from ten countries that adopted the euro, the three EU countries that did not start using the euro, as well as Norway and Switzerland. We show that the introduction of the euro has increased Tobin's Q-ratios by 16.7% in the euro-countries that previously had weak currencies. The increase in Q-ratios decreases to 8.7% once we take into account the changes in the interest rates. The increases in Tobin's Q are larger for firms that were exposed to intra-European currency risks, i.e. firms that were ex-ante expected to benefit more from the common currency. Finally, the increases are also more significant for financially unconstrained firms. The evidence supports the view that the introduction of the euro has lowered firms' cost of capital in the euro-countries.

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Bibliographic Info

Paper provided by Stockholm School of Economics in its series Working Paper Series in Economics and Finance with number 525.

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Length: 73 pages
Date of creation: 24 Apr 2003
Date of revision: 06 Dec 2003
Handle: RePEc:hhs:hastef:0525

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

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Cited by:
  1. Hardouvelis, Gikas A. & Malliaropulos, Dimitrios & Priestley, Richard, 2007. "The impact of EMU on the equity cost of capital," Journal of International Money and Finance, Elsevier, Elsevier, vol. 26(2), pages 305-327, March.
  2. Nicolas Coeurdacier & Roberto A. De Santis & Antonin Aviat, 2009. "Cross-border mergers and acquisitions and European integration," Economic Policy, CEPR;CES;MSH, CEPR;CES;MSH, vol. 24, pages 55-106, 01.
  3. Roel Beetsma & Massimo Giuliodori, 2010. "The Macroeconomic Costs and Benefits of the EMU and Other Monetary Unions: An Overview of Recent Research," Journal of Economic Literature, American Economic Association, American Economic Association, vol. 48(3), pages 603-41, September.
  4. Bris, Arturo & Koskinen, Yrjö & Nilsson, Mattias, 2011. "The Euro and Corporate Financing," CEPR Discussion Papers, C.E.P.R. Discussion Papers 8227, C.E.P.R. Discussion Papers.
  5. 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", Centre of Financial and Monetary Research "Victor Slavescu", vol. 13(1), pages 131-152, March.
  6. International Monetary Fund, 2011. "Did the Euro Crisis Affect Non-Financial Firm Stock Prices Through a Financial or Trade Channel?," IMF Working Papers, International Monetary Fund 11/227, International Monetary Fund.
  7. Sohnke M. Bartram & G. Andrew Karolyi, 2002. "The Impact of the Introduction of the Euro on Foreign Exchange Rate Risk Exposures," Finance, EconWPA 0207005, EconWPA, revised 16 Sep 2002.
  8. 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, Elsevier, vol. 22(2), pages 193-207, June.
  9. Philip R. Lane, 2008. "EMU and Financial Integration," The Institute for International Integration Studies Discussion Paper Series, IIIS iiisdp272, IIIS.
  10. Stephan Siegel & Christian Lundblad & Campbell R. Harvey & Geert Bekaert, 2011. "The European Union, the Euro, and Equity Market Integration," 2011 Meeting Papers, Society for Economic Dynamics 468, Society for Economic Dynamics.
  11. Bartram, Söhnke M., 2008. "What lies beneath: Foreign exchange rate exposure, hedging and cash flows," Journal of Banking & Finance, Elsevier, Elsevier, vol. 32(8), pages 1508-1521, August.
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