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

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

*Corresponding author for this work

Research output: Contribution to journalArticlepeer-review

15 Citations (Scopus)

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.

Original languageEnglish
Pages (from-to)457-481
Number of pages25
JournalReview of Quantitative Finance and Accounting
Volume59
Issue number2
Early online date15 Mar 2022
DOIs
Publication statusPublished - Aug 2022

Keywords

  • Cost of capital
  • Cross country evidence
  • Economic policy uncertainty
  • Foreign equity portfolio flow

ASJC Scopus subject areas

  • Accounting
  • General Business,Management and Accounting
  • Finance

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