Political risk and the cost of capital in the MENA region

Mohamed Belkhir (), Narjess Boubakri and Jocelyn Grira

Emerging Markets Review, 2017, vol. 33, issue C, 155-172

Abstract: We examine the impact of political risk in the MENA region on the cost at which firms can raise capital. Using the implied cost of equity as a measure of the cost of capital and ICRG's political risk rating as a proxy for political risk, we find that political risk results in a higher cost of capital. Economically, our results suggest that a one standard deviation increase in the political risk index is associated with a 450 basis points increase in the cost of equity capital of MENA firms. Our results are consistent across a battery of robustness checks. Our findings have important policy implications that are relevant to the MENA region and beyond.

Date: 2017
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Citations: View citations in EconPapers (21)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:ememar:v:33:y:2017:i:c:p:155-172

DOI: 10.1016/j.ememar.2017.08.002

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