Investability and Firm Value
Brigham Young University - J. Willard and Alice S. Marriott School of Management
National University of Ireland, Maynooth (NUI Maynooth) - Department of Economics
January 12, 2010
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.
Number of Pages in PDF File: 36
Keywords: Financial liberalization, Investability, Foreign investors, Tobin’s q
JEL Classification: G15, F36working papers series
Date posted: January 12, 2010
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