Abstract
ABSTRACT We examine how geopolitical risk from North Korea’s threats affects South Korean firms’ credit ratings. North Korea’s threats, measured by the number of missiles launched, are negatively related to firms’ credit ratings. Employing a sample of South Korean public firms over the period 2012–2021, we find that the credit ratings of South Korean companies decrease with the number of missiles launched. Cross-sectional analyses indicate that the negative effect of North Korean risk differs depending on the firm characteristics. Specifically, firms with higher debt ratios are more significantly affected by North Korea’s threats. In addition, firms whose financial statements are audited by Big 4 auditors are associated with higher credit ratings than those by non-Big 4 auditors. Our findings contribute to the literature on geopolitical risk by identifying the effects of geopolitical risk on credit ratings.
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