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Economic policy uncertainty and cost of capital: the mediating effects of foreign equity portfolio flow

Author

Listed:
  • Frank Obenpong Kwabi

    (De Montfort University)

  • Samuel Owusu-Manu

    (De Montfort University)

  • Agyenim Boateng

    (De Montfort University)

  • Ernest-Bruno Ezeani

    (Manchester Metropolitan University)

  • Min Du

    (Edinburgh Napier University)

Abstract

We investigate whether economic policy uncertainty and the interaction of foreign equity portfolio flow and economic policy uncertainty impact the cost of capital. Using panel data of 20 countries from 2001 to 2018, we find economic policy uncertainty to exert a positive effect on the cost of capital. However, the interaction between foreign equity portfolio flow and economic policy uncertainty has a negative effect on the cost of capital, demonstrating that, the combined effect of foreign equity portfolio flow and economic policy uncertainty has the opposite effect (i.e., reduces the cost of capital). Our results are robust to alternative specifications and endogeneity.

Suggested Citation

  • Frank Obenpong Kwabi & Samuel Owusu-Manu & Agyenim Boateng & Ernest-Bruno Ezeani & Min Du, 2022. "Economic policy uncertainty and cost of capital: the mediating effects of foreign equity portfolio flow," Review of Quantitative Finance and Accounting, Springer, vol. 59(2), pages 457-481, August.
    • Handle: RePEc:kap:rqfnac:v:59:y:2022:i:2:d:10.1007_s11156-022-01046-y
    DOI: 10.1007/s11156-022-01046-y
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    2. Hamza Almustafa & Imad Jabbouri & Ploypailin Kijkasiwat, 2023. "Economic Policy Uncertainty, Financial Leverage, and Corporate Investment: Evidence from U.S. Firms," Economies, MDPI, vol. 11(2), pages 1-19, January.

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    More about this item

    Keywords

    Cost of capital; Economic policy uncertainty; Foreign equity portfolio flow; Cross country evidence;
    All these keywords.

    JEL classification:

    • A11 - General Economics and Teaching - - General Economics - - - Role of Economics; Role of Economists
    • D24 - Microeconomics - - Production and Organizations - - - Production; Cost; Capital; Capital, Total Factor, and Multifactor Productivity; Capacity
    • D81 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Criteria for Decision-Making under Risk and Uncertainty

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