Systematic Risk in Global Supply Chain Networks - a Country-Level ESG Analysis

Abstract

Using datasets from both the U.S. and China, we find some empirical results on the systematic risk in the global supply chain network. Specifically, we document that Environmental (E-risk) risk is positively associated with both stock volatility and bond volatility, while Governance (G-risk) and Social (S-risk) risk are only negatively associated with stock volatility in the U.S. In China’s market, we report that both E-risk and G-risk factors are negatively (positively) while the S-risk factor is positively (positively) associated with stock volatility (bond volatility). Regarding the relationship between ESG risk factors and supply chain centrality, we find that G-risk and S-risk factors are positively (negatively) associated with supply chain centrality in the U.S. (China). Lastly, the U.S. and China present opposite directions on the relationship between supply chain centrality and stock volatility/bond volatility, where the U.S. shows a negative relationship and China shows a positive one. Our findings imply different systematic risk management implications regarding the supply chain centrality and the ESG risk for the U.S. and China.

Keywords: ESG Risk, Global Trade Networks, Systematic Risk, Sovereign Bond, Refinitiv MarketPsych Analytics