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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

Authors

Frank Obenpong Kwabi

Samuel Owusu-Manu

Agyenim Boateng

Ernest-Bruno Ezeani



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.

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

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Economic Policy Uncertainty And Cost Of Capital: The Mediating Effects Of Foreign Equity Portfolio Flow (accepted version) (529 Kb)
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