Scandinavian Working Papers in Economics

Working Papers,
Swedish Entrepreneurship Forum

No 2012:12: Property Rights and the Cost of Capital

Per-Olof Bjuggren and Johan Eklund ()
Additional contact information
Per-Olof Bjuggren: Jönköping International Business School and Ratio Institute
Johan Eklund: Swedish Entrepreneurship Forum, Postal: Swedish Entrepreneurship Forum, Örebro University, SE-70182 ÖREBRO, Sweden

Abstract: In countries with more secure property rights, the cost of capital is lower, suggesting higher investment rates. Using data from 49 countries we extend the conventional capital-asset pricing model (CAPM) to include a property rights risk-factor. In the conventional CAPM model only a single risk factor – systemic risk – is considered. However, when using a world market portfolio to estimate systemic risk in national portfolios, little of the required rate of return is explained in less developed as compared to more developed countries. Adding a factor representing institutional risk increases predictive power substantially. Further, we find that property rights affect the transmission of information, which suggests that markets price information differently, and allocate resources less efficiently, in countries with less secure property rights. We find that the CAPM model performs better in countries with more secure property rights.

Keywords: Asset pricing; International financial markets; Property rights; Cost of capital; Investment.

JEL-codes: G12; G15; G38; N20

21 pages, September 1, 2012

Full text files

WP_12.pdf PDF-file 

Download statistics

Questions (including download problems) about the papers in this series should be directed to Mikael Jorstig ()
Report other problems with accessing this service to Sune Karlsson ().

This page generated on 2018-01-23 23:31:52.