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Examining the Impact of Political Risks on the Price-to-Earnings (P/E) Ratio in Developing Countries
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Alireza Omidi    , Seyed mehdi Barakchian * , Ali Motavasseli |
| Institute of Management and Planning , m.barakchian@imps.ac.ir |
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Abstract: (17 Views) |
| The price-earnings ratio (p/e) is one of the most widely used criteria for evaluating and comparing stocks in the capital market. The p/e ratio shows significant variations (ranging from less than 6 to more than 20) among developing countries with relatively similar characteristics, such as higher risks, lower income, and faster economic growth. Identifying the underlying causes of these differences helps with a better understanding of how stocks are valued in different environments. Using annual data from 26 developing countries over the period 2003 to 2020, the analysis shows that political risk, as measured by the ICRG index, significantly reduces the p/e ratio. A 10-point decrease in the political risk score decreases p/e ratio by 4/3-points. The results are robust to alternative model specifications, accounting for control variables such as dividend payout ratio (DPO), risk-free rate, GDP growth rate, inflation rate, and global risk index (VIX). Additionally, the results are held under different estimation techniques, including GMM and FGLS. |
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| Keywords: Stock Market, Price-to-earnings ratio (p/e), Political Ris |
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Full-Text [PDF 801 kb]
(5 Downloads)
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Type of Study: Research |
Subject:
Special
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