The Impact of Geopolitical Risk on Credit Risk

Posted: 29 Jun 2024

See all articles by Christos Ioannidis

Christos Ioannidis

Aston University - Aston Business School

Nikos Paltalidis

Durham University Business School

Bingzhi Zhang

Durham University Business School

Date Written: June 22, 2024

Abstract

We provide evidence that geopolitical risk impacts global industrial production heterogeneously across countries resulting to fragmented markets. Some firms experience adverse impact in their expected cash flow resulting to higher credit risk, while others withstand the shock and reduce their credit risk. A strand of the theoretical literature demonstrates that expected spreads are smaller while diversification opportunities increase in fragmented markets. We find opposite results, that credit spreads and the risk premium increase when markets are fragmented depending on industry and firm characteristics, and therefore diversification opportunities deteriorate.    

Suggested Citation

Ioannidis, Christos and Paltalidis, Nikos and Zhang, Bingzhi, The Impact of Geopolitical Risk on Credit Risk (June 22, 2024). Available at SSRN: https://ssrn.com/abstract=4874121

Christos Ioannidis

Aston University - Aston Business School ( email )

Aston Triangle
Birmingham, B47ET
United Kingdom

Nikos Paltalidis (Contact Author)

Durham University Business School ( email )

Mill Hill Lane
Durham, Durham DH1 3LB
United Kingdom

Bingzhi Zhang

Durham University Business School ( email )

Mill Hill Lane
Durham, DH1 3LB
United Kingdom

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