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Title:The Euro is good after all: Evidence from corporate valuations PDF Logo
Authors:Bris, Arturo
Koskinen, Yrjö
Nilsson, Mattias
Issue Date:2003
Series/Report no.:SSE/EFI Working Paper Series in Economics and Finance 525
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.
Subjects:Economic and Monetary Union (EMU)
the euro
valuation
cost of capital
currency risk
currency union
JEL:F33
F36
G32
Document Type:Working Paper
Appears in Collections:SSE/EFI Working Paper Series in Economics and Finance, EFI - The Economic Research Institute, Stockholm School of Economics

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