Political Risk and the Cost of Capital in Asia-Pacific Property Markets

Hainan Sheng, George D. Cashman, David M. Harrison

Research output: Contribution to journalArticlepeer-review

Abstract

This study investigates the impact of political risk on the cost of capital for publicly traded real estate firms. More specifically, by using a sample of 102 REITs and listed property trusts, which hold nearly 6,000 distinct investment properties across the Asia-Pacific region, we find strong empirical evidence that increased exposure to political risk increases both the cost of equity financing of a firm and its weighted average cost of capital. Interestingly, no such linkages are apparent between political risk and the cost of debt of a firm. These empirical results are robust to a variety of alternative measures of political risk, including a: 1) political rights index, 2) political change index, and 3) corruption perceptions index.
Original languageAmerican English
JournalInternational Real Estate Review
Volume18
StatePublished - Jan 1 2015

Disciplines

  • Economics
  • Finance

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