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From uncertainty to prudence: does the cost of capital matter in the GCC region?
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DOI：10.1080/23311975.2026.2627022.png)
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Abstract
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The influence of Economic Policy Uncertainty (EPU) on global financial and corporate decision-making is well-documented, with oil-dependent countries being particularly susceptible to EPU’s impact. This research assesses the effect of EPU on accounting conservatism in the GCC economies and whether EPU affects the cost of capital, and if so, what role does the cost of capital play in its own right as to the accounting conservatism. In order to achieve these objectives, the research uses non-financial publicly traded companies in the GCC as subjects over the period of 2010 through 2022. Furthermore, the research examined how the cost of capital moderates the relationship between EPU and accounting conservatism. Utilizing the dynamic GMM approach, the study found four major results. First, EPU has a highly statistically significant positive effect on accounting conservatism. Second, EPU has a very statistically significant positive effect on the cost of capital. Third, the cost of capital is very positively related to accounting conservatism. Fourth, the cost of capital has a very positive moderating effect on the relationship between EPU and accounting conservatism. The findings are useful for policymakers as they suggest that regulatory frameworks should be developed that promote conservative accounting practices to increase financial stability and transparency when there is EPU. Finally, the effective management of financing costs is a critical factor in managing the cost of capital as a viable tool during periods of high EPU.
Keywords:
Accounting conservatism
cost of capital
EPU
GCC
GMM
Economics
Business
Management and Accounting
Finance
Journal
C
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