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Investability and Firm Value

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  • 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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Keywords: Financial liberalization; Investability; Foreign investors; Tobin's q;

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