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Political risk and the cost of capital in the MENA region

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  • Belkhir, Mohamed
  • Boubakri, Narjess
  • Grira, Jocelyn

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.

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  • Belkhir, Mohamed & Boubakri, Narjess & Grira, Jocelyn, 2017. "Political risk and the cost of capital in the MENA region," Emerging Markets Review, Elsevier, vol. 33(C), pages 155-172.
    • Handle: RePEc:eee:ememar:v:33:y:2017:i:c:p:155-172
    DOI: 10.1016/j.ememar.2017.08.002
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