Geographic location, foreign ownership, and cost of equity capital: Evidence from privatization

Narjess Boubakri, Omrane Guedhami, Walid Saffar

Research output: Journal article publicationJournal articleAcademic researchpeer-review

33 Citations (Scopus)


Motivated by recent research on the link between geographic proximity and information risk, we examine the impact of geographic location on a firm's ownership structure and cost of equity capital using a large sample of newly privatized firms from 47 countries. We find that the greater the firm's distance from domestic financial centers, the lower foreign investors' participation and ownership. We also find that strong country-level institutions governing investor protection mitigate the information disadvantage of foreign investors. In additional analyses, we find that investors require higher cost of equity capital for distant privatized firms, especially in countries with weak governance institutions. We conclude that geographic location is an important determinant of post-privatization ownership structure and cost of equity capital. Our results are robust to alternative explanations and suggest that improving country-level governance institutions can mitigate the adverse effect of location in remote areas.
Original languageEnglish
Pages (from-to)363-381
Number of pages19
JournalJournal of Corporate Finance
Publication statusPublished - 1 Jun 2016


  • Geographic location
  • Ownership structure
  • Privatization

ASJC Scopus subject areas

  • Business and International Management
  • Finance
  • Economics and Econometrics
  • Strategy and Management


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