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Investability and Firm Value

Author

Listed:
  • 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

Suggested Citation

  • Thomas O'Connor & Todd Mitton, 2008. "Investability and Firm Value," Economics Department Working Paper Series n1920508.pdf, Department of Economics, National University of Ireland - Maynooth.
    • Handle: RePEc:may:mayecw:n1920508.pdf
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    References listed on IDEAS

    as
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    More about this item

    Keywords

    Financial liberalization; Investability; Foreign investors; Tobin's q;
    All these keywords.

    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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