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Investability and Firm Value

  • Thomas O'Connor

    ()

    (Economics Finance and Accounting, National University of Ireland, Maynooth)

  • Todd Mitton

    ()

    (Brigham Young University)

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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File URL: http://repec.maynoothuniversity.ie/mayecw-files/N1920508.pdf
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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
Contact details of provider: Postal: Maynooth, Co. Kildare
Phone: 353-1-7083728
Fax: 353-1-7083934
Web page: http://www.maynoothuniversity.ie/economics-finance-and-accounting

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  17. Steven M. Fazzari & R. Glenn Hubbard & BRUCE C. PETERSEN, 1988. "Financing Constraints and Corporate Investment," Brookings Papers on Economic Activity, Economic Studies Program, The Brookings Institution, vol. 19(1), pages 141-206.
  18. Mitton, Todd, 2006. "Stock market liberalization and operating performance at the firm level," Journal of Financial Economics, Elsevier, vol. 81(3), pages 625-647, September.
  19. Chari, Anusha & Henry, Peter B., 2002. "Risk Sharing and Asset Prices: Evidence from a Natural Experiment," Research Papers 1736r, Stanford University, Graduate School of Business.
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