Geopolitical risk and corporate capital structure

Authors

Md Shahedur R. Chowdhury, University of Texas at San Antonio
Mohsen Aram, Western Kentucky University
Siamak Javadi, The University of Texas Rio Grande ValleyFollow
Ali Nejadmalayeri, University of Wyoming

Document Type

Article

Publication Date

7-2025

Abstract

Using a news-based index of geopolitical risk (GPR) and over 62 years of data, we find that GPR has a long-lasting negative impact on leverage. Our result is robust to different model specifications, different proxies for leverage, a battery of robustness tests, and survives after addressing endogeneity concerns. Further, we provide evidence that the effect is channeled through declining shifts in both the demand and supply of credit. Cross-sectional tests indicate that the effect is stronger for firms with higher existing leverage, those with more irreversible investment, and those whose stock returns are more sensitive to GPR. Overall, our analysis indicates that GPR is more important than other macro-level determinants of capital structure such as inflation, GDP growth, interest rate variables and other widely used measures of uncertainty.

Comments

Original published version available at https://doi.org/10.1016/j.jcorpfin.2025.102796

Publication Title

Journal of Corporate Finance

DOI

10.1016/j.jcorpfin.2025.102796

Recommended Citation

Chowdhury, M.S.R., Aram, M., Javadi, S. and Nejadmalayeri, A., 2025. Geopolitical risk and corporate capital structure. Journal of Corporate Finance, p.102796. https://doi.org/10.1016/j.jcorpfin.2025.102796