The Euro and Corporate Valuations
Boston University School of Management Working Paper No. 2006-21
60 Pages Posted: 28 Feb 2004 Last revised: 27 Oct 2008
Date Written: November 2007
In this paper we study the changes in corporate valuations induced by the adoption of the euro as the common currency in Europe. We use corporate-level data from eleven countries that adopted the euro, the three EU countries that did not start using the euro, as well as Norway and Switzerland. We show that the introduction of the euro has increased Tobin's Q-ratios by 17.1% in the euro-area countries that previously had weak currencies. Part of the increase in corporate valuations is explained by the decrease in interest rates and by the decrease in the cost of equity. The increases in Tobin's Q are larger for firms that would be harmed by currency devaluations.
Keywords: Economic and Monetary Union (EMU), the euro, valuation, cost of capital, currency risk, currency union
JEL Classification: F33, F36, G32
Suggested Citation: Suggested Citation