Political risk and the cost of capital in the MENA region

Mohamed Belkhir, Narjess Boubakri, Jocelyn Grira

    Research output: Contribution to journalArticlepeer-review

    30 Citations (Scopus)

    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.

    Original languageEnglish
    Pages (from-to)155-172
    Number of pages18
    JournalEmerging Markets Review
    Volume33
    DOIs
    Publication statusPublished - Dec 1 2017

    ASJC Scopus subject areas

    • Business and International Management
    • Economics and Econometrics

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