O'Connor, Thomas and Mitton, Todd
Investability and Firm Value. Department of Economics, Finance & Accounting Working paper series N192/05/08.
National University of Ireland Maynooth.
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 Tobins 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 Tobins 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.
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