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

Obenpong Kwabi, Frank; Owusu-Manu, Samuel; Boateng, Agyenim; Ezeani, Ernest-Bruno; Du, Min

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.

Citation

Obenpong Kwabi, F., Owusu-Manu, S., Boateng, A., Ezeani, E., & Du, M. (2022). Economic policy uncertainty and cost of capital: the mediating effects of foreign equity portfolio flow. Review of Quantitative Finance and Accounting, 59, 457-481. https://doi.org/10.1007/s11156-022-01046-y

• Journal Article Type: Article
• Acceptance Date: Feb 4, 2022
• Online Publication Date: Mar 12, 2022
• Publication Date: 2022-08
• Deposit Date: Apr 27, 2022
• Publicly Available Date: Mar 13, 2023
• Journal: Review of Quantitative Finance and Accounting
• Print ISSN: 0924-865X
• Electronic ISSN: 1573-7179
• Publisher: Springer
• Peer Reviewed: Peer Reviewed
• Volume: 59
• Pages: 457-481
• DOI: https://doi.org/10.1007/s11156-022-01046-y
• Keywords: Cost of capital, Economic policy uncertainty, Foreign equity portfolio flow, Cross country evidence
• Public URL: http://researchrepository.napier.ac.uk/Output/2867601