Geopolitical Risk and Corporate Capital Structure

Posted: 13 Aug 2023

See all articles by Md Shahedur R. Chowdhury

Md Shahedur R. Chowdhury

Arkansas Tech University-College of Business

Mohsen Aram

Western Kentucky University

Siamak Javadi

University of Texas - Rio Grande Valley

Date Written: August 13, 2023

Abstract

Utilizing a news-based index of geopolitical risk (GPR) and using over 62 years of data, we find that GPR has a long-lasting negative impact on leverage. This result is robust to different model specifications, different proxies for leverage, several robustness tests, and survive after addressing endogeneity concerns through quasi-natural experiment and instrumental variable regression. We provide evidence that the effect is channeled through both the demand and supply of credit. Cross-sectional tests indicate that the effect is stronger for firms with higher existing leverage, those with more irreversible investment, and those with higher exposure to GPR.

Keywords: G30; G32

JEL Classification: Geopolitical Risk; Capital Structure Policy; Leverage

Suggested Citation

Chowdhury, Md Shahedur R. and Aram, Mohsen and Javadi, Siamak, Geopolitical Risk and Corporate Capital Structure (August 13, 2023). Available at SSRN: https://ssrn.com/abstract=4539731

Md Shahedur R. Chowdhury (Contact Author)

Arkansas Tech University-College of Business ( email )

Russellville, AR 72801
United States

Mohsen Aram

Western Kentucky University ( email )

Bowling Green, KY 42101
United States

Siamak Javadi

University of Texas - Rio Grande Valley ( email )

1201 W. University Dr.
Edinburg, TX 78539
United States

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