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 language | English |
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Pages (from-to) | 155-172 |
Number of pages | 18 |
Journal | Emerging Markets Review |
Volume | 33 |
DOIs | |
Publication status | Published - Dec. 2017 |