Investability and Firm Value

31 Pages Posted: 20 Oct 2012

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: November 2012

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.

Keywords: financial liberalisation, investability, foreign investors, Tobin's q

JEL Classification: G15, F36

Suggested Citation

Mitton, Todd and O'Connor, Thomas, Investability and Firm Value (November 2012). European Financial Management, Vol. 18, Issue 5, pp. 731-761, 2012, Available at SSRN: https://ssrn.com/abstract=2164033 or http://dx.doi.org/10.1111/j.1468-036X.2010.00573.x

Todd Mitton (Contact Author)

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

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

County Kildare
Ireland

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