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Investability and Firm Value

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  • Todd Mitton
  • Thomas O’Connor

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). This significant valuation premium persists in firm†fixed effects regressions, although the magnitude and robustness of the premium is somewhat lower. 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

  • Todd Mitton & Thomas O’Connor, 2012. "Investability and Firm Value," European Financial Management, European Financial Management Association, vol. 18(5), pages 731-761, November.
    • Handle: RePEc:bla:eufman:v:18:y:2012:i:5:p:731-761
    DOI: 10.1111/j.1468-036X.2010.00573.x
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