Political Risk and the Cost of Capital in the MENA Region

41 Pages Posted: 30 Aug 2017

See all articles by Mohamed Belkhir

Mohamed Belkhir

UAE University

Narjess Boubakri

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

Jocelyn Grira

Qatar University

Date Written: August 28, 2017

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.

Keywords: Political risk, Institutions, cost of capital, MENA, investment

JEL Classification: G11, G32, G38

Suggested Citation

Belkhir, Mohamed and Boubakri, Narjess and Grira, Jocelyn, Political Risk and the Cost of Capital in the MENA Region (August 28, 2017). Emerging Markets Review, Forthcoming. Available at SSRN: https://ssrn.com/abstract=3027987

Mohamed Belkhir (Contact Author)

UAE University ( email )

College of Business and Economics
P.O.Box 17555
Al Ain, 17555
United Arab Emirates

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

Jocelyn Grira

Qatar University ( email )

College of Business and Economics
P.O.Box 2713
Doha, Doha 2713
Qatar
+97444035087 (Phone)

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