Political uncertainty and the cost of equity capital

Xiaorong Li, Jingbo Luo and Kam C. Chan

Finance Research Letters, 2018, vol. 26, issue C, 215-222

Abstract: We study the impact of political uncertainty on the cost of equity. The change of communist party secretaries every several years in Chinese cities provides a good setting for our analysis. Our results suggest that a firm's cost of equity is higher when facing political uncertainty. In addition, we find that when a firm receives a large amount of government subsidies, the CEO/chairman is politically connected, or when the stock market is a bear market, the adverse effect is stronger. In contrast, after the anti-corruption campaign in 2012 or the city is financially advanced, the adverse impact is less pronounced.

Date: 2018
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Citations: View citations in EconPapers (21)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:finlet:v:26:y:2018:i:c:p:215-222

DOI: 10.1016/j.frl.2018.01.009

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