The impact of political uncertainty on the cost of capital

Date

2024-01-20

Advisors

Journal Title

Journal ISSN

ISSN

0924-865X
1573-7179

Volume Title

Publisher

Springer

Type

Article

Peer reviewed

Yes

Abstract

We investigate the impact of political uncertainty on the relationship between foreign equity portfolio flow and the cost of capital. Using panel data from 40 countries from 2001 to 2016, our results show that the year before a national election is associated with a higher cost of capital. Further analyses show that the relationship between international equity portfolio flow and the cost of capital is sensitive to political uncertainty. In line with the institutional quality channel, we find that checks and balances interact with political uncertainty to reduce the negative effects of political uncertainty on the cost of capital. The results are consistent with the hypothesis that foreign investors strategically reduce their equity portfolio investment to the recipient country before a national election which reduces risk-sharing between domestic and foreign investors.

Description

The file attached to this record is the author's final peer reviewed version. The Publisher's final version can be found by following the DOI link.

Keywords

Citation

Owusu, A., Ezeani, E. and Boateng, A. (2024) The impact of political uncertainty on the cost of capital. Review of Quantitative Finance and Accounting,

Rights

Attribution-NonCommercial-NoDerivatives 4.0 International
http://creativecommons.org/licenses/by-nc-nd/4.0/

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