Political rights and equity pricing

Narjess Boubakri, Sadok El Ghoul and Walid Saffar

Journal of Corporate Finance, 2014, vol. 27, issue C, 326-344

Abstract: We examine the influence of political rights on the implied cost of equity capital using a sample of firms from 44 countries. We find that firms' equity financing costs are lower when political rights are stronger. We further find that political institutions' direct impact on the cost of equity capital is incremental to that of legal institutions. Economically, our results imply that a one standard deviation increase in political rights is associated with a 38 basis point decrease in corporate cost of equity capital. In additional analyses, we find that the effect of political rights on equity pricing is more pronounced in countries with weak legal institutions.

Keywords: Political rights; Legal institutions; Cost of equity (search for similar items in EconPapers)
JEL-codes: G18 G32 G38 P16 (search for similar items in EconPapers)
Date: 2014
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (21)

Downloads: (external link)
http://www.sciencedirect.com/science/article/pii/S0929119914000613
Full text for ScienceDirect subscribers only

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:eee:corfin:v:27:y:2014:i:c:p:326-344

DOI: 10.1016/j.jcorpfin.2014.05.009

Access Statistics for this article

Journal of Corporate Finance is currently edited by A. Poulsen and J. Netter

More articles in Journal of Corporate Finance from Elsevier
Bibliographic data for series maintained by Catherine Liu ().