Abstract
AbstractResearch Question/IssueDoes geopolitical risk increase a firm's risk‐taking, and will diversification expansion smooth out or exacerbate this effect?Research Findings/InsightsBased on microdata of Chinese A‐share listed companies, we find that (1) geopolitical risk significantly increases corporate risk‐taking at both micro and macro levels; (2) horizontal diversification can significantly smooth out the impact of geopolitical risk on a firm's risk‐taking, while vertical diversification will exacerbate the effect; (3) geopolitical risk and diversification do not significantly impact all firms, and their effect are limited to non‐state‐owned enterprises and firms in manufacturing industries.Theoretical/Academic ImplicationsFirst, compared with the previous studies, this paper identifies the geopolitical risk faced by each sample firm separately, thus providing a more accurate analysis of the impact of the specific geopolitical risk faced by the firm on its risk‐taking. Second, we expand the connotation of diversification and analyze its moderating effect on corporate risk‐taking from the perspective of horizontal and vertical diversification. Third, considering that the degree of political affiliation and capital intensity may affect a firm's sensitivity to geopolitical risk, this paper examines the relationship between geopolitical risk, diversification, and a firm's risk‐taking regarding property rights and industry type.Practitioner/Policy ImplicationsOn the one hand, export‐oriented firms should pay close attention to the geopolitical risk situation in exporting countries to reduce the adverse impact of sudden geopolitical risks. On the other hand, diversification expansion is a double‐edged sword for firms. Although vertical diversification increases the risk‐taking of a firm, it also increases its specialization. Therefore, it is necessary to make a comprehensive judgment on whether and what kind of diversification an enterprise should undertake according to its business development status.
Sign-in/Register to access full text options 
Talk to us
Join us for a 30 min session where you can share your feedback and ask us any queries you have
Schedule a callDisclaimer: All third-party content on this website/platform is and will remain the property of their respective owners and is provided on "as is" basis without any warranties, express or implied. Use of third-party content does not indicate any affiliation, sponsorship with or endorsement by them. Any references to third-party content is to identify the corresponding services and shall be considered fair use under The CopyrightLaw.
