The Political Determinants of the Cost of Equity: Evidence from Newly Privatized Firms

57 Pages Posted: 31 Mar 2010

See all articles by Narjess Boubakri

Narjess Boubakri

American University of Sharjah - School of Business and Management; HEC Montreal - Department of Finance

Jean-Claude Cosset

HEC Montreal

Hamdi Ben Nasr

HEC Montreal

Multiple version iconThere are 3 versions of this paper

Date Written: 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.

Keywords: Cost of Equity, Control structure, Political institutions, Privatization

JEL Classification: G32, G31, G38, G30

Suggested Citation

Boubakri, Narjess and Cosset, Jean-Claude and Ben Nasr, Hamdi, The Political Determinants of the Cost of Equity: Evidence from Newly Privatized Firms (February 26, 2010). Available at SSRN: https://ssrn.com/abstract=1578785 or http://dx.doi.org/10.2139/ssrn.1578785

Narjess Boubakri

American University of Sharjah - School of Business and Management ( email )

P.O. Box 26666
Sharjah
United Arab Emirates

HOME PAGE: http://www.aus.edu

HEC Montreal - Department of Finance ( email )

3000 Chemin de la Cote-Sainte-Catherine
Montreal, Quebec H3T 2A7
Canada

Jean-Claude Cosset

HEC Montreal ( email )

3000, Chemin de la Côte-Sainte-Catherine
Montreal, Quebec H3T 2A7
Canada
514-340-6872 (Phone)
514-340-6987 (Fax)

Hamdi Ben Nasr (Contact Author)

HEC Montreal ( email )

3000, Chemin de la Côte-Sainte-Catherine
Montreal, Quebec H2X 2L3
Canada

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