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Investability and Firm Value
Author(s) -
Mitton Todd,
O’Connor Thomas
Publication year - 2012
Publication title -
european financial management
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 1.311
H-Index - 64
eISSN - 1468-036X
pISSN - 1354-7798
DOI - 10.1111/j.1468-036x.2010.00573.x
Subject(s) - tobin's q , value premium , valuation (finance) , enterprise value , openness to experience , monetary economics , valuation effects , economics , market value added , market value , robustness (evolution) , equity (law) , financial economics , business , capital asset pricing model , finance , psychology , social psychology , biochemistry , chemistry , political science , law , gene
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.