Political Risk and the Cost of Capital in Asia-Pacific Property Markets

George D. Cashman (), David M. Harrison () and Hainan Sheng ()
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George D. Cashman: Texas Tech University
David M. Harrison: Texas Tech University
Hainan Sheng: Texas Tech University

International Real Estate Review, 2015, vol. 18, issue 3, 331-364

Abstract: This study investigates the impact of political risk on the cost of capital for publicly traded real estate firms. More specifically, by using a sample of 102 REITs and listed property trusts, which hold nearly 6,000 distinct investment properties across the Asia-Pacific region, we find strong empirical evidence that increased exposure to political risk increases both the cost of equity financing of a firm and its weighted average cost of capital. Interestingly, no such linkages are apparent between political risk and the cost of debt of a firm. These empirical results are robust to a variety of alternative measures of political risk, including a: 1) political rights index, 2) political change index, and 3) corruption perceptions index.

Keywords: political risk; cost of capital; REITs and listed property trusts; international real estate (search for similar items in EconPapers)
JEL-codes: L85 (search for similar items in EconPapers)
Date: 2015
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Citations: View citations in EconPapers (4)

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