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 crisis. 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 Institute for Financial Research in its series SIFR Research Report Series with number 9.
Length: 55 pages
Date of creation: 15 Nov 2002
Date of revision:
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Postal: Institute for Financial Research Drottninggatan 89, SE-113 60 Stockholm, Sweden
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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 ysm294, Yale School of Management, revised 01 Oct 2008.
- Bris, Arturo & Koskinen, Yrjö & Nilsson, Mattias, 2002. "The Euro Is Good After All: Corporate Evidence," Working Paper Series in Economics and Finance 510, Stockholm School of Economics.
- 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-2002-12-17 (All new papers)
- NEP-CFN-2002-12-17 (Corporate Finance)
- NEP-EEC-2002-12-17 (European Economics)
- NEP-IFN-2002-12-17 (International Finance)
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- Pierre-Richard Agenor & Joshua Aizenman, 2008. "Capital Market Imperfections and the Theory of Optimum Currency Areas," NBER Working Papers 14088, National Bureau of Economic Research, Inc.
- Grubel, Herbert, 2005. "Small country benefits from monetary union," Journal of Policy Modeling, Elsevier, vol. 27(4), pages 509-523, June.
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