{"id":{"repo_id":"de-montfort","oai_identifier":"oai:dora.dmu.ac.uk:2086/22282"},"canonical_url":"https://search.dev.ndltd.org/etd/de-montfort/oai:dora.dmu.ac.uk:2086/22282","repository":{"repo_id":"de-montfort","name":"De Montfort University","base_url":"https://dora.dmu.ac.uk/server/oai/request"},"display":{"title":"The impact of central bank independence and transparency on the cost of capital, equity home and foreign bias, and debt home and foreign bias","abstract":"The independence and transparency of central banks have a substantial influence on investment holdings and financial decisions, as monetary policy affects macroeconomic fundamentals and the financial market. A Political government of a country may influence monetary policy as different political parties have different agendas and goals. Politicians are well aware of the importance of monetary policy issues such as price stability and market volatility; however, they are less inclined than the central bank's authority to prioritize monetary policy objectives over their political agenda and commitment to the public. Politicians and central bank personnel have diverse policy preferences and points of view, making central bank independence (CBI) and transparency (CBT) crucial for a country's financial market and competitiveness. Therefore, our main argument is that central bank independence and transparency may interact with macroeconomy and institutional quality to reduce information asymmetry and convey policy and institutional stability signals to foreign investors. As a result, more market participants lead to risk sharing, lower cost of capital, reduced home bias, and increased foreign bias in equity and debt portfolios. This study employed a panel dataset of 40 countries from 2001 to 2014, including 23 developed and 17 emerging countries. The first empirical study investigates the impact of central bank independence and transparency on the cost of capital. Following existing literature, we use four measures to proxy for the cost of capital. We find compelling evidence supporting the hypothesis that countries with a higher degree of central bank independence and transparency experience lower cost of capital. In the second empirical study, we examine the impact of central bank independence and transparency on equity home and equity foreign bias. Our findings, based on rigorous analysis, demonstrate that a lower degree of home bias is linked to a higher degree of central bank independence and transparency, and an equally higher degree of equity foreign bias is associated with an increased degree of central bank independence and transparency. Finally, in our third empirical study, we investigate whether various degrees of central bank independence and transparency affect debt home and debt foreign bias in the same way that equity home and foreign bias. Following extensive analysis, our findings demonstrate that a lower level of debt home bias is associated with a higher degree of central bank independence and transparency. Similarly, higher debt foreign bias is associated with increased central bank independence and transparency. The primary contribution to the knowledge of this research is its extension of the literature on central banking and international finance. As the independence and transparency of the central bank influence, the cost of capital is crucial for developing a country's financial market and economic growth. Therefore, this study would help policymakers develop a deeper understanding of monetary policy principles and international portfolio management. The independence and transparency of the central bank influence home bias and foreign bias in equity and debt portfolio by reducing the cost of capital and increasing risk sharing among investors. The fund manager and portfolio investors will find this study invaluable in making decisions regarding international portfolio investment allocation.","abstract_html":"The independence and transparency of central banks have a substantial influence on investment holdings and financial decisions, as monetary policy affects macroeconomic fundamentals and the financial market. A Political government of a country may influence monetary policy as different political parties have different agendas and goals. Politicians are well aware of the importance of monetary policy issues such as price stability and market volatility; however, they are less inclined than the central bank's authority to prioritize monetary policy objectives over their political agenda and commitment to the public. Politicians and central bank personnel have diverse policy preferences and points of view, making central bank independence (CBI) and transparency (CBT) crucial for a country's financial market and competitiveness. Therefore, our main argument is that central bank independence and transparency may interact with macroeconomy and institutional quality to reduce information asymmetry and convey policy and institutional stability signals to foreign investors. As a result, more market participants lead to risk sharing, lower cost of capital, reduced home bias, and increased foreign bias in equity and debt portfolios. This study employed a panel dataset of 40 countries from 2001 to 2014, including 23 developed and 17 emerging countries. The first empirical study investigates the impact of central bank independence and transparency on the cost of capital. Following existing literature, we use four measures to proxy for the cost of capital. We find compelling evidence supporting the hypothesis that countries with a higher degree of central bank independence and transparency experience lower cost of capital. In the second empirical study, we examine the impact of central bank independence and transparency on equity home and equity foreign bias. Our findings, based on rigorous analysis, demonstrate that a lower degree of home bias is linked to a higher degree of central bank independence and transparency, and an equally higher degree of equity foreign bias is associated with an increased degree of central bank independence and transparency. Finally, in our third empirical study, we investigate whether various degrees of central bank independence and transparency affect debt home and debt foreign bias in the same way that equity home and foreign bias. Following extensive analysis, our findings demonstrate that a lower level of debt home bias is associated with a higher degree of central bank independence and transparency. Similarly, higher debt foreign bias is associated with increased central bank independence and transparency. The primary contribution to the knowledge of this research is its extension of the literature on central banking and international finance. As the independence and transparency of the central bank influence, the cost of capital is crucial for developing a country's financial market and economic growth. Therefore, this study would help policymakers develop a deeper understanding of monetary policy principles and international portfolio management. The independence and transparency of the central bank influence home bias and foreign bias in equity and debt portfolio by reducing the cost of capital and increasing risk sharing among investors. The fund manager and portfolio investors will find this study invaluable in making decisions regarding international portfolio investment allocation.","abstract_has_math":false,"creators":["Al Mamoon, Abdullah"],"institution":"De Montfort University","degree_name":"PhD","degree_level":"Doctoral","degree_discipline":null,"degree_department":null,"school":null,"contributors":[],"advisors":[],"committee_chairs":[],"committee_members":[],"year":2022,"date_issued":"2022","date_published":"2022","updated_at":"2026-07-24T06:18:54Z","subjects":[],"languages":[],"rights":[],"rights_urls":["https://dora.dmu.ac.uk/bitstreams/80b17ef5-abab-42fa-919a-1f0036e82512/download"],"identifier_entries":[]},"links":{"outbound_url":null,"outbound_label":null,"outbound_source":null},"metadata_groups":[{"id":"people","label":"People","entries":[{"key":"dc:creator","label":"Author","values":["Al Mamoon, Abdullah"]}]},{"id":"academic_context","label":"Academic Context","entries":[{"key":"dc:date.issued","label":"Date","values":["2022"]},{"key":"dc:publisher.department","label":"Dc Publisher Department","values":["Faculty of Business and Law"]},{"key":"dc:publisher.institution","label":"Dc Publisher Institution","values":["De Montfort University"]},{"key":"dc:relation.isreferencedby","label":"Dc Relation Isreferencedby","values":["https://hdl.handle.net/2086/22282"]},{"key":"dc:type","label":"Dc Type","values":["Thesis or dissertation"]},{"key":"dc:type.qualificationlevel","label":"Dc Type Qualificationlevel","values":["Doctoral"]},{"key":"dc:type.qualificationname","label":"Dc Type Qualificationname","values":["PhD"]}]},{"id":"language_rights","label":"Language and Rights","entries":[{"key":"dc:rights","label":"Dc Rights","values":["https://dora.dmu.ac.uk/bitstreams/80b17ef5-abab-42fa-919a-1f0036e82512/download"]}]},{"id":"identifiers","label":"Identifiers","entries":[{"key":"dc:identifier.uri","label":"Identifier URI","values":["https://dora.dmu.ac.uk/bitstreams/488eeca0-2cdd-40ac-9331-0575e6587e21/download"]}]},{"id":"additional","label":"Additional Metadata","entries":[{"key":"dc:description.abstract","label":"Abstract","values":["The independence and transparency of central banks have a substantial influence on investment holdings and financial decisions, as monetary policy affects macroeconomic fundamentals and the financial market. 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As a result, more market participants lead to risk sharing, lower cost of capital, reduced home bias, and increased foreign bias in equity and debt portfolios. This study employed a panel dataset of 40 countries from 2001 to 2014, including 23 developed and 17 emerging countries. The first empirical study investigates the impact of central bank independence and transparency on the cost of capital. Following existing literature, we use four measures to proxy for the cost of capital. We find compelling evidence supporting the hypothesis that countries with a higher degree of central bank independence and transparency experience lower cost of capital. In the second empirical study, we examine the impact of central bank independence and transparency on equity home and equity foreign bias. Our findings, based on rigorous analysis, demonstrate that a lower degree of home bias is linked to a higher degree of central bank independence and transparency, and an equally higher degree of equity foreign bias is associated with an increased degree of central bank independence and transparency. Finally, in our third empirical study, we investigate whether various degrees of central bank independence and transparency affect debt home and debt foreign bias in the same way that equity home and foreign bias. Following extensive analysis, our findings demonstrate that a lower level of debt home bias is associated with a higher degree of central bank independence and transparency. Similarly, higher debt foreign bias is associated with increased central bank independence and transparency. The primary contribution to the knowledge of this research is its extension of the literature on central banking and international finance. As the independence and transparency of the central bank influence, the cost of capital is crucial for developing a country's financial market and economic growth. Therefore, this study would help policymakers develop a deeper understanding of monetary policy principles and international portfolio management. The independence and transparency of the central bank influence home bias and foreign bias in equity and debt portfolio by reducing the cost of capital and increasing risk sharing among investors. 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This study employed a panel dataset of 40 countries from 2001 to 2014, including 23 developed and 17 emerging countries. The first empirical study investigates the impact of central bank independence and transparency on the cost of capital. Following existing literature, we use four measures to proxy for the cost of capital. We find compelling evidence supporting the hypothesis that countries with a higher degree of central bank independence and transparency experience lower cost of capital. In the second empirical study, we examine the impact of central bank independence and transparency on equity home and equity foreign bias. Our findings, based on rigorous analysis, demonstrate that a lower degree of home bias is linked to a higher degree of central bank independence and transparency, and an equally higher degree of equity foreign bias is associated with an increased degree of central bank independence and transparency. Finally, in our third empirical study, we investigate whether various degrees of central bank independence and transparency affect debt home and debt foreign bias in the same way that equity home and foreign bias. Following extensive analysis, our findings demonstrate that a lower level of debt home bias is associated with a higher degree of central bank independence and transparency. Similarly, higher debt foreign bias is associated with increased central bank independence and transparency. The primary contribution to the knowledge of this research is its extension of the literature on central banking and international finance. As the independence and transparency of the central bank influence, the cost of capital is crucial for developing a country's financial market and economic growth. Therefore, this study would help policymakers develop a deeper understanding of monetary policy principles and international portfolio management. 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