Political rights and equity pricing |
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| Institution: | 1. School of Business and Management, American University of Sharjah, P.O. Box 26666, United Arab Emirates;2. Campus Saint-Jean, University of Alberta, Edmonton AB T6C 4G9, Canada;3. School of Accounting and Finance, The Hong Kong Polytechnic University, Hung Hum, Hong Kong;1. Gatton College of Business and Economics, University of Kentucky, Lexington, KY 40506, United States;2. School of Economics and Business, State University of New York-Oneonta, Oneonta, NY 13820, United States;1. Accounting and Finance, University of Western Australia, UWA Business School, 35 Stirling Highway WA 6009, Australia;2. Two Embarcadero Center, Quantal International Inc., 8th Floor, San Francisco, CA 94111, United States;3. University of California, Haas School of Business, 545 Student Services Bldg, #1900 Berkeley, Berkeley, CA 94720, United States;1. Abacus Property Group, Sydney, New South Wales 2000, Australia;2. School of Economics and Finance, Queensland University of Technology, Brisbane, Queensland 4001, Australia |
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| Abstract: | We examine the influence of political rights on the implied cost of equity capital using a sample of firms from 44 countries. We find that firms' equity financing costs are lower when political rights are stronger. We further find that political institutions' direct impact on the cost of equity capital is incremental to that of legal institutions. Economically, our results imply that a one standard deviation increase in political rights is associated with a 38 basis point decrease in corporate cost of equity capital. In additional analyses, we find that the effect of political rights on equity pricing is more pronounced in countries with weak legal institutions. |
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