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The Political Determinants of the Cost of Equity: Evidence from Newly Privatized FirmsNarjess BoubakriAmerican University of Sharjah - School of Business and Management; HEC Montreal - Department of Finance Jean-Claude CossetHEC Montreal Hamdi Ben NasrHEC Montreal February 26, 2010 Abstract: We use a unique dataset of 158 privatized firms from 29 countries between 1987 and 2003 to investigate the political determinants of the cost of equity. We find strong, robust evidence that the cost of equity is increasing in government control, while controlling for other determinants of the cost of equity. We also find that the cost of equity is significantly related to the political system and to the government’s tenure. In addition, we find that the adverse effects of government control on the cost of equity are less pronounced when the government has been in power longer and when the risk of government expropriation is lower.
Number of Pages in PDF File: 57 Keywords: Cost of Equity, Control structure, Political institutions, Privatization JEL Classification: G32, G31, G38, G30 working papers seriesDate posted: March 31, 2010Suggested CitationContact Information
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