Economic policy uncertainty and cost of capital: the mediating effects of foreign equity portfolio flow

Frank Obenpong Kwabi (), Samuel Owusu-Manu (), Agyenim Boateng (), Ernest-Bruno Ezeani () and Min Du ()
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Frank Obenpong Kwabi: De Montfort University
Samuel Owusu-Manu: De Montfort University
Agyenim Boateng: De Montfort University
Ernest-Bruno Ezeani: Manchester Metropolitan University
Min Du: Edinburgh Napier University

Review of Quantitative Finance and Accounting, 2022, vol. 59, issue 2, No 2, 457-481

Abstract: Abstract We investigate whether economic policy uncertainty and the interaction of foreign equity portfolio flow and economic policy uncertainty impact the cost of capital. Using panel data of 20 countries from 2001 to 2018, we find economic policy uncertainty to exert a positive effect on the cost of capital. However, the interaction between foreign equity portfolio flow and economic policy uncertainty has a negative effect on the cost of capital, demonstrating that, the combined effect of foreign equity portfolio flow and economic policy uncertainty has the opposite effect (i.e., reduces the cost of capital). Our results are robust to alternative specifications and endogeneity.

Keywords: Cost of capital; Economic policy uncertainty; Foreign equity portfolio flow; Cross country evidence (search for similar items in EconPapers)
JEL-codes: A11 D24 D81 (search for similar items in EconPapers)
Date: 2022
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Citations: View citations in EconPapers (2)

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DOI: 10.1007/s11156-022-01046-y

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