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Political Risk and the Cost of Capital in Asia-Pacific Property Markets

Author

Listed:
  • George D. Cashman

    () (Texas Tech University)

  • David M. Harrison

    () (Texas Tech University)

  • Hainan Sheng

    () (Texas Tech University)

Abstract

This study investigates the impact of political risk on the cost of capital for publicly traded real estate firms. More specifically, by using a sample of 102 REITs and listed property trusts, which hold nearly 6,000 distinct investment properties across the Asia-Pacific region, we find strong empirical evidence that increased exposure to political risk increases both the cost of equity financing of a firm and its weighted average cost of capital. Interestingly, no such linkages are apparent between political risk and the cost of debt of a firm. These empirical results are robust to a variety of alternative measures of political risk, including a: 1) political rights index, 2) political change index, and 3) corruption perceptions index.

Suggested Citation

  • George D. Cashman & David M. Harrison & Hainan Sheng, 2015. "Political Risk and the Cost of Capital in Asia-Pacific Property Markets," International Real Estate Review, Asian Real Estate Society, vol. 18(3), pages 331-364.
  • Handle: RePEc:ire:issued:v:18:n:03:2015:p:331-364
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    Cited by:

    1. Farida Titik Kristanti, 2017. "Corporate Governance, Financial Ratios, Political Risk and Financial Distress, A Survival Analysis," GATR Journals afr130, Global Academy of Training and Research (GATR) Enterprise.

    More about this item

    Keywords

    political risk; cost of capital; REITs and listed property trusts; international real estate;

    JEL classification:

    • L85 - Industrial Organization - - Industry Studies: Services - - - Real Estate Services

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