In this paper, we examine the cost of equity capital for politically connected firms. After controlling for several firm- and country-level determinants, our results show that politically connected firms have a lower cost of equity capital than their nonconnected peers. Our results are robust to alternative measures and proxies for the cost of equity capital. We thus provide strong evidence that investors require a lower cost of capital for politically connected firms, suggesting that these firms are generally considered to be less risky than non-connected firms. Our findings imply that the benefits of political connections outweigh their costs. We conjecture that this perception is fueled by the soft budget constraints generally enjoyed by politically connected firms, and by their lower default probability, given the assurance of corporate bailout in the event of financial downturns.