Open AccessInternational Real Estate Review
Author(s) -
George D. Cashman,
AUTHOR_ID,
David Harrison,
Hainan Sheng,
AUTHOR_ID,
AUTHOR_ID
Publication year - 2015
Publication title -
journal of the asian real estate society
Language(s) - English
Resource type - Journals
ISSN - 1029-6131
DOI - 10.53383/100205
Subject(s) - real estate investment trust , political risk , index (typography) , politics , real estate , equity (law) , economics , cost of capital , systematic risk , estate , sample (material) , monetary economics , finance , business , market economy , chemistry , chromatography , world wide web , political science , computer science , law , incentive
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.