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Investability and Firm Value

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Author Info
Thomas O'Connor () (Economics Finance and Accounting, National University of Ireland, Maynooth)
Todd Mitton () (Brigham Young University)
Abstract

We study how investability, or openness to foreign equity investors, affects firm value in a sample of over 1,400 firms from 26 emerging markets. We find that, on average, investability is associated with a 9% valuation premium (as measured by Tobin's q). However, in firm-fixed effects regressions this valuation premium disappears, suggesting that investability does not have a causal effect on firm value. Analysis of the components of Tobin's q shows that firms that become investable experience significant increases in both market values and physical investment. These effects are strongest for firms that face country-level or firm-level financial constraints prior to becoming investable

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Paper provided by Department of Economics, Finance and Accounting, National University of Ireland - Maynooth in its series Economics, Finance and Accounting Department Working Paper Series with number n1920508.pdf.

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Length: 34
Date of creation: 2008
Date of revision:
Handle: RePEc:may:mayecw:n1920508.pdf

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Postal: Maynooth, Co. Kildare
Phone: 353-1-7083728
Fax: 353-1-7083934
Web page: http://www.may.ie/academic/economics/
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Related research
Keywords: Financial liberalization; Investability; Foreign investors; Tobin's q;

Find related papers by JEL classification:
G15 - Financial Economics - - General Financial Markets - - - International Financial Markets
F36 - International Economics - - International Finance - - - Financial Aspects of Economic Integration

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