Firm-level political risk and corporate leverage decisions

Daniel Gyimah, Albert Danso, Emmanuel Adu-Ameyaw and Agyenim Boateng

International Review of Financial Analysis, 2022, vol. 84, issue C

Abstract: This study examines the effects of firm-level political risk on firm leverage decisions and speed of adjustment. We uncover that firm-level political risk has a negative impact on a firm's total and long-term leverage. We also find that firms facing high political risk tend to prefer debts with short-term maturity. However, firm-level political risk is positively related to debt specialisation, suggesting that firms are more inclined to adopt fewer debt types when they face high political risk. Further analysis reveals that firms with high political risk are associated with a faster speed of adjustment to target than those with low political risk. Our results are robust to endogeneity concerns and the effects of financial crisis.

Keywords: Firm-level political risk; Leverage; Debt maturity; Debt specialisation; Speed of adjustment; US (search for similar items in EconPapers)
JEL-codes: D8 G3 G32 (search for similar items in EconPapers)
Date: 2022
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Citations: View citations in EconPapers (10)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:finana:v:84:y:2022:i:c:s1057521922003040

DOI: 10.1016/j.irfa.2022.102354

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