Investability and Firm Value

36 Pages Posted: 12 Jan 2010

See all articles by Todd Mitton

Todd Mitton

Brigham Young University - J. Willard and Alice S. Marriott School of Management

Thomas O’Connor

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

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Date Written: January 12, 2010

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.

Keywords: Financial liberalization, Investability, Foreign investors, Tobin’s q

JEL Classification: G15, F36

Suggested Citation

Mitton, Todd and O'Connor, Thomas, Investability and Firm Value (January 12, 2010). Available at SSRN: https://ssrn.com/abstract=1535474 or http://dx.doi.org/10.2139/ssrn.1535474

Todd Mitton

Brigham Young University - J. Willard and Alice S. Marriott School of Management ( email )

Provo, UT 84602
United States
801-422-1763 (Phone)

Thomas O'Connor (Contact Author)

National University of Ireland, Maynooth (NUI Maynooth) - Department of Economics, Finance and Accounting ( email )

County Kildare
Ireland

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