Does geopolitical risk affect firms' leasing policy?

Research 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.

Purpose : This paper studied the impact of geopolitical risks (GPR) in the top 10 economies on India's large-cap, mid-cap, and small-cap stocks. Methodology : For the investigation, we employed the quantile regression technique using a monthly dataset from January 2004 to December 2020. Findings : We discovered some extremely interesting and valuable outcomes. First, geopolitical risk threats (GPRT) and China had a significant impact; additionally, GPR, geopolitical risks acts (GPRA), France, Germany, India, and the UK had a considerable impact; Canada, Japan, South Korea, and the USA had negligible impacts; and Italy had no impact on large-cap and mid-cap stocks. Second, GPRT and China had a significant impact; GPR, GPRA, India, and the United Kingdom had a considerable impact; and Canada, France, and Germany had a minimal impact on small-cap stocks. The aggregate impact of global and country-specific GPR on Indian LMS stocks was not homogeneous, showing that GPR in these economies did not uniformly influence Indian LMS stocks. Practical Implications : Our findings could assist investors in identifying market patterns, managing portfolio risk, anticipating probable stock market changes, and adjusting their investing plan accordingly. By implementing our results into their investing strategy, investors might be able to earn higher returns or minimize risk, and improve their total investment performance. Originality : As far as we know, this is the first study that looked at the impact of GPR in the top 10 economies on Indian large-cap, mid-cap, and small-cap equities.

The latest progress summary of sustainable development goals (SDGs) in 2023 reveals that the ongoing growth pattern of Asian economies is inadequate. Asian countries are facing several challenges in securing the targets of SDGs, and environmental degradation is one of the major issues among them. Hence, urgent actions are required to attain SDG targets. Several studies in the available literature have considered multiple determinants of environmental degradation. However, the impact of green production practices (GPP) and geopolitical risk (GPR) is relatively ignored particularly in the framework of Asian economies. Therefore, it is needed to propose an extensive policy framework for attaining the objectives of SDGs and raising environmental quality. Moreover, this study is a pioneering attempt that scrutinizes the eclectic influence of green production practices and geopolitical risk on carbon emissions. The study follows the model based on the environmental Kuznets curve (EKC) hypothesis for selected Asian countries. The study has utilized the Panel Quantile Regression (PQR) technique to analyze the facts from selected Asian economies from 1990 to 2020. The long-run evaluations reveal the EKC hypothesis proves valid in the preferred Asian economies. Moreover, green production practices play a crucial role in controlling the rising levels of carbon emissions in the selected Asian countries whereas, geopolitical risk and foreign direct investments are proven constructive elements in raising carbon emissions. Lastly, based on the empirical outcomes, this study provides policy implications for achieving the targets of SDG 07, SDG 09, SDG 12, SDG 13, SDG 15, SDG 16, and SDG 17.

In spite of the fact that the connection between exports of goods and services and economic growth has for quite some time been talked about, the examination of the relationship in light of recent global events such as economic policy uncertainty and geopolitical risks is yet to be given the required attention. Various empirical researches have demonstrated that the export‐led growth hypothesis (ELGH) holds for singular nations in terms of overall economic development. However, this study re‐examines the ELGH with a special focus on the absolute and mediating impact of economic policy uncertainties and geopolitical risks. With data spanning the period 1980 to 2018. Empirical results from the Autoregressive distributed lag model and the error correction models suggest that for Malaysia, Economic Policy Uncertainty (EPU) exerts a negative impact on growth evens as its moderating impact on exports leads to negative economic growth. On the other hand, the impact of Geopolitical risk on growth is both negative and positive but insignificant in the short‐run and long‐run respectively. The study suggests the government of Malaysia works to ensure macroeconomic and political stability to achieve export‐driven growth in the country.

The impact of geopolitical risks on connectedness among natural resource commodities: A quantile vector autoregressive approach

This study examines the co-movement between geopolitical risk (GPR), energy price, and bitcoin (BTC) in BRICS countries, namely Brazil, Russia, India, China, and South Africa. Previous studies have focused on the impact of GPR on the volatility and risk premium of BTC investment. However, very limited studies have focused on integrating BTC as an extension of the mix of GPR on the co-movement with energy price. The analysis is based on monthly data of GPR index for BRICS countries, brent oil futures, natural gas futures and BTCs covering the period between March 2012 and Jun 2021. We employ the Bayesian graphical structural vector autoregressive model and time-varying parameter vector autoregressions-based dynamic connectedness to investigate the network-dependence structure. This research project provides useful empirical evidence for assessing the impact of both BTC and GPR on energy prices. Nonetheless, it will also be informative about the likelihood of co-movements occurring at different stages.

The Impact of Geopolitical Risk on Stock Returns: Evidence from Inter-Korea Geopolitics

Asymmetric impacts of geopolitical risk on stock markets: A comparative analysis of the E7 and G7 equities during the Russian-Ukrainian conflict

Geopolitical Risk and Investment

Purpose:This study aims to comprehensively analyze and compare the impacts of geopolitical risks on equity markets and financial stress in both emerging and advanced economies.We seek to understand how GPR affects market returns, volatility, and overall financial stability across different economic landscapes.Design/Methodology/Approach: We employ a multi-faceted approach utilizing various econometric techniques.These include the GARCH-MIDAS model for volatility prediction, lead-lag regression, Markov regime-switching model, and panel quantile estimation.We use the geopolitical threats (GPT) index of Caldara and Iacoviello and consider both composite and decomposed GPR indices.Our analysis covers major emerging economies and the G7 countries, using daily stock returns and monthly GPR data.Findings: Our findings reveal significant disparities in how geopolitical risks impact emerging and advanced economies.The U.S. equity market, particularly in the information technology and financial sectors, shows positive returns during high geopolitical threats.In contrast, emerging markets exhibit increased stock market volatility in response to GPR.Financial stress in emerging economies intensifies with increased GPR, especially when financial conditions are already strained.Advanced economies primarily witness GPR effects in their stock markets.Practical Implications: The study also identifies optimal hedging strategies, such as between the U.S. market and gold, during periods of high geopolitical threats.These results have important implications for investment strategies and policy decisions in the face of geopolitical uncertainties.Originality value: Geopolitical risks (GPR) significantly influence global financial markets.However, their impacts differ across economies and market segments.Previous studies have shown varied effects of GPR on asset prices, stock market volatility, and financial stress in different economic contexts.

PurposeThis study aims to examine whether geopolitical risk (GPR) impacts the cash holdings behavior of 210 Turkish firms between 2005 and 2019. The authors choose Turkey as a country of interest because Turkey has an important place in terms of geographical location and serves as a bridge between Europe and Asia. Considering the prominent role that can play in decision-making processes, the authors thought that analyzing the impact of GPR on the cash holdings determinants of Turkish firms would be important and interesting. A widely accepted view is that GPRs play an important role in the economic decisions of emerging countries, such as Turkey.Design/methodology/approachThe authors examine models with fixed effects (FE), random effects (RE) and pooled ordinary least squares (POLS), respectively. First, the authors analyzed whether POLS, FE or RE would be the most appropriate model. According to the F-test and the Breusch–Pagan LM test, the FE and the RE models are more suitable than POLS. Then, according to the Hausman test results, the authors found that FE is this study's most appropriate model. After determining the validity of FE, the diagnostics tests of heteroscedasticity, autocorrelation and serial correlation tests are examined. Due to the presence of these problems, Driscoll and Kraay's (1998) test, which is the robust standard error estimator, is used.Findings The authors find a positive relationship between GPR and cash holdings after controlling firm-level control variables. Firms faced with uncertainty prefer to hoard cash as a precautionary measure. In keeping with real options theory, firms postpone the investments of firms under uncertain conditions. The use of alternative measurements for GPR and cash holdings ensures the validity of our results. The authors' research reveals that investors and politicians should pay more attention to the influence of GPR on the determinants of the cash holdings of firms.Research limitations/implicationsThere are limitations for this study, but this study may provide opportunities for further studies. First, this study has only data from Turkey. This situation mitigates cross-country effects. In future studies, the number of firms, countries of focus and time span can be expanded. Second, this study does not consider the period of coronavirus disease 2019 (COVID-19) that increased risk and uncertainty worldwide. Further studies may consider the impact of COVID-19 and geographical risks relating to cash holdings. Third, the authors try to choose more relied independent and control variables.Practical implicationsThe authors' results provide some insights that are relevant to practitioners and policymakers. Managers need to consider GPR in managers' financial decisions based on managers' firm-specific characteristics. Turkish policymakers should target improving policies to alleviate the negative effects of GPRs. Regulators should postulate more encouraging policies to firms in an environment of GPR. Regulators can give firms more time to understand and analyze the GPRs and the impacts of GPRs to adjust regulators' day-to-day activities.Originality/valueThere are fewer studies in the literature that analyzed the relationship between GPR and cash holdings. This study aims to full this gap in the literature.

Geopolitical risks have emerged as a significant factor influencing the resilience of transnational food supply chains. This paper systematically reviews the foundational theories and key issues related to the resilience of transnational food supply chains from the geopolitical risk's perspective. Literature analysis indicate that geopolitical risks primarily affect the resilience of China's transnational food supply chains: supply uncertainty, price uncertainty and logistics uncertainty. Additionally, review of empirical studies on the impact of geopolitical risks on the resilience of transnational food supply chains reveals that existing research generally supports the view that geopolitical risks significantly diminish the resilience of China's transnational food supply chains, although variations exist across different grain varieties and over time regarding the extent and nature of these impacts. Finally, this paper proposes future research directions, including identifying the transmission pathways of geopolitical risks affecting China's transnational food supply chains, uncovering the behavioral logic of multiple actors within these chains under geopolitical risks, systematically assessing the resilience of key nodes and the overall risk level of China's transnational food supply chains, conducting an in‐depth exploration of the reconstruction pathways for these chains, and designing strategies to integrate the interests of diverse stakeholders in transnational food supply chains.

This study examines the impact of geopolitical risk (GPR) on the connectedness dynamics among the sovereign bonds of the emerging seven (E7) and the Group of Seven (G7) countries. Initially, a quantile-based vector-autoregressive (Q-VAR) connectedness approach is used to calculate the total connectedness index (TCI) among sovereign bonds under different market states. Then, the impact of GPR on the TCI at the median and tails is estimated to examine if GPR affects the TCI among sovereign bonds. Using daily yields from 30 January 2012, to 17 June 2024, the findings show that the GPR is one of the significant determinants of the TCI among sovereign bonds during normal and extreme market conditions. Other determinants of the TCI include yields on Treasury bills (T-bills), the exchange rate, and the financial market volatility index. The impact of GPR on the TCI varies significantly during different GPR episodes and bond market conditions. The effect of GPR on the TCI among sovereign bonds yields is higher during war times and when bond yields are average. These findings can be utilized by investors seeking to achieve international diversification and policymakers aiming to mitigate the effects of heightened geopolitical risk on financial stability. Furthermore, GPR can be used as an early signal tool for systematic tail risk spillovers among sovereign bonds.

In this article, we investigate the impact of geopolitical risk (GPR) on international tourism demand in emerging economies. We have found that impact of GPR is not homogeneous for every country in our sample; for example, some countries are affected heavily by GPR and others are mostly immune to GPR shocks. In general, for countries that have attractive tourism destinations, the impact of GPR is minimal, indicating that if international tourists desperately want to go a destination, they do not take GPR seriously. In addition, the tsunami impact of GPR is not the same for all affected countries. For some countries, the GPR shocks have an impact within 2 to 3 months of its ‘first hit’, while for other countries, the impact is felt over longer periods.

Political Uncertainty and Corporate Innovations in the United States