We test whether policy risk is systematically priced in equity returns across 49 countries from 1995 to 2013. We construct two global policy risk factors based on the ratings from international country risk guide. They capture the policy risk from government instability (GOVLMH) and the quality...

Akerlof (2007) proposes that the norms of decision makers can bridge the gap between New Classical economic theories and conflicting empirical evidence. We apply his framework to cross-country capital structure decision making and propose a norm theory of capital structure. Consistent with its...