The impact of political uncertainty on the cost of capital
Journal article
Authors | Kwabi, F., Owusu, A., Ezeani, E. and Boateng, A. |
---|---|
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. |
Keywords | Cost of capital; political uncertainty; foreign equity portfolio flow; institutional quality |
Year | 2024 |
Journal | Review of Quantitative Finance and Accounting |
Journal citation | pp. 1-33 |
Publisher | Springer |
ISSN | 1573-7179 |
Digital Object Identifier (DOI) | https://doi.org/10.1007/s11156-023-01236-2 |
Web address (URL) | https://link.springer.com/article/10.1007/s11156-023-01236-2 |
Accepted author manuscript | License All rights reserved File Access Level Controlled |
Publisher's version | File Access Level Controlled |
Output status | Published |
Publication dates | |
Online | 20 Jan 2024 |
Publication process dates | |
Accepted | 12 Dec 2023 |
Deposited | 22 Jan 2024 |
https://repository.derby.ac.uk/item/q4195/the-impact-of-political-uncertainty-on-the-cost-of-capital
Restricted files
Accepted author manuscript
40
total views0
total downloads1
views this month0
downloads this month