Discussion Paper Details

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Title: The Euro is Good After All: Evidence from Corporate Valuations

Author(s): Arturo Bris, Yrj Koskinen and Mattias Nilsson

Publication Date: May 2003

Keyword(s): cost of capital, currency risk, currency union, economic and monetary union (EMU), the euro and valuation

Programme Area(s): Financial Economics

Abstract: In this Paper we study the changes in corporate valuation induced by the formation of Economic and Monetary Union (EMU) in Europe. We use corporate-level data from ten countries that adopted the euro, the three EU countries that did not join EMU, as well as Norway and Switzerland. We show that the introduction of the euro has increased Tobin's Q-ratios in EMU countries by 7.4%. The effects prevail even if we account for the decrease in long-term interest rates. The increases in Tobin's Q are larger for firms that are ex-ante expected to benefit more, i.e. firms from countries that had weak currencies and firms that were exposed to intra-European currency risks. Finally, the increases are also more significant for firms that are financially unconstrained. The evidence provided here supports the view that the introduction of the euro has lowered firms' cost of capital in EMU-countries.

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Bibliographic Reference

Bris, A, Koskinen, Y and Nilsson, M. 2003. 'The Euro is Good After All: Evidence from Corporate Valuations'. London, Centre for Economic Policy Research.