Thomas O’Connor

Investability and Firm Value

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

Are There Permanent Valuation Gains from Becoming Investable

In this paper, I examine whether the “investable premium” documented by Mitton and O’Connor (2010) is permanent. In a series of firm-fixed effects regressions, I show that the “investability premium” disappears after five years of becoming investable, but subsequently reappears, and appears permanent. At the very least, the “investable premium” tends to last at least as long as some other “internationalization premia” documented in the literature, and remains even after 12 years of becoming investable. The premium persists, even after controlling for observable and unobservable firm-level characteristics, industry growth, and indirect investability.

Financial Development, Internationalisation and Firm Value

In this article I show that both aspects of financial development, namely, liberalisation and deepening, and financial internationalisation proxied using cross-listings in the US creates value for emerging market firms. Financial deepening, or more precisely, stock market deepening enhances value. In contrast, bank sector deepening only serves to reduce value because it is associated with large-scale corporate expansion and a fall in market capitalisation. Like others, I document a cross-listing premium for Level 2/3 cross-listings in the US. The cross-listing premium is typically less than the gains from financial liberalisation, but they are similar in magnitude over the period examined.

The Effects of Ownership Structure and Governance on Corporate Financing Decisions

We analyze the impact of firm-specific stock market liberalization events on the capital structure and debt maturity decisions of firms from emerging market economies. In particular, we focus on the potentially different responses of firms with different ownership structures and associated governance regimes at the time of liberalization. Our empirical results show that single-class-share (typically with stronger corporate governance) firms respond differently to their dual-class-share counterparts. Liberalization results in lower debt reliance for the former group while the latter lengthen the maturity of their debt portfolios.

Shareholder and creditor legal rights and the outcome model of dividends

In a sample of 22,374 firms from 35 countries, we examine the role of creditor rights, shareholder rights, and corporate governance in determining corporate dividend policy. We find that, while all three variables play a significant role in determining both the likelihood and the dividend amount, the effect of country-level creditor rights dominate. In subsequent analysis, we show that the outcome model is most effective in countries with strong creditor rights. When creditor rights are weak, creditors demand, and firms consent to lower dividends. These findings show that creditors, and not shareholders, exert the greatest influence over corporate dividend policy.