SSE/EFI Working Paper Series in Economics and Finance
No 525:
The Euro and Corporate Valuations
Arturo Bris ()
, Yrjö Koskinen ()
and Mattias Nilsson ()
Abstract: 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-evel data from ten 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 16.7% in the euro-countries that previously had weak
currencies. The increase in Q-ratios decreases to 8.7% once we take into
account the changes in the interest rates. The increases in Tobin's Q are
larger for firms that were exposed to intra-European currency risks, i.e.
firms that were ex-ante expected to benefit more from the common currency.
Finally, the increases are also more significant for financially
unconstrained firms. The evidence supports the view that the introduction
of the euro has lowered firms' cost of capital in the euro-countries.
Keywords: Economic and Monetary Union (EMU); the euro; valuation; cost of capital; currency risk; currency union; (follow links to similar papers)
JEL-Codes: F33; F36; G32; (follow links to similar papers)
73 pages, April 24, 2003, Revised February 23, 2004
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