de Bragança, Gabriel Godofredo Fiuza Moreira, Ajax Reynaldo Bello Rocha, Katia
Year of Publication:
Texto para Discussão No. 2508
Institutional characteristics of each country acquire increasingly importance in the economic literature of the determinants of growth, investment and risk perception, especially in emerging economies. The objective of this work is to quantitatively assess the impact of institutional quality indicators on the risk premium, i.e., the additional return required by the investor to commit investments in the countries. The article draws on the theoretical premises of the Gordon-Williams' discounted dividend model (DDM) and institutional quality indicators to estimate from a set of 4,763 companies located in 48 countries in the period from 2009 to 2015, the required return for investing in a company. Our main result is that by using a broad set of control variables, increasing the aggregate measure of institution quality reduces the required risk premium for the selected countries, contributing to higher levels of investment.
institutional risk prize investments regulation and governance Gordon model