Political risk and the cost of capital in the MENA region

Mohamed Belkhir, Narjess Boubakri, Jocelyn Grira

Research output: Contribution to journalJournal Articlepeer-review

33 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. 2017

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