The Euro and Corporate Valuations

Arturo Bris (), Yrjö Koskinen () and Mattias Nilsson ()
Additional contact information
Arturo Bris: Yale School of Management, Postal: 135 Prospect Street, New Haven, CT 06511-3729, USA
Mattias Nilsson: Stockholm Institute for Financial Research, Postal: Saltmätargatan 19 A, SE-113 59 Stockholm, Sweden, http://www.sifr.org/

No 525, SSE/EFI Working Paper Series in Economics and Finance from Stockholm School of Economics

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 (search for similar items in EconPapers)
JEL-codes: F33 F36 G32 (search for similar items in EconPapers)
Pages: 73 pages
Date: 2003-04-24, Revised 2004-02-23
New Economics Papers: this item is included in nep-cfn, nep-eec and nep-ifn
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (19)

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Journal Article: The Euro and Corporate Valuations (2009)
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Persistent link: https://EconPapers.repec.org/RePEc:hhs:hastef:0525

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