Executive characteristics as moderators: Exploring the impact of geopolitical risk on capital structure decisions

Abstract

This study examines the relationship between geopolitical risk and firms’ capital structure decisions, focusing on the moderating effects of executive characteristics. Using US corporations data from 1992 to 2020, we find that firms adopt more conservative capital structure choices in response to higher exposure to geopolitical risk. Furthermore, we investigate how executives’ age and gender influence this relationship. Our findings indicate that firms with a higher proportion of female executives demonstrate heightened sensitivity to geopolitical risk, leading to more risk-averse financial decisions. In contrast, firms with older executives attenuate the adverse impact of geopolitical risk on financial leverage, suggesting a mitigating effect. The robustness of our results is confirmed through alternative measures of capital structure and estimation methods. We also identify risk aversion as a potential channel through which geopolitical risk affects capital structure choices and examine the role of executive characteristics in this channel using a moderated mediation model.