Geopolitical risk and stock price crash risk: The mitigating role of ESG performance

Paolo Fiorillo, Antonio Meles, Luigi Raffaele Pellegrino and Vincenzo Verdoliva

International Review of Financial Analysis, 2024, vol. 91, issue C

Abstract: We study the effect of geopolitical risk (GPR) on stock price crash risk and we investigate the mediating role of the ESG factors in this relationship. Using a large international sample of publicly listed firms, we find that higher GPR causes stock price crashes to occur more frequently. This result holds to several robustness checks and to the use of different measures of stock price crash risk and we rule out any potential endogeneity concern using an Instrumental Variables (IV) approach. We also find that the causal effect of GPR on crash events is mainly driven by the expectations and threats of geopolitical tensions (geopolitical threats), rather than their effective realization and escalation (geopolitical acts). However, when exploring the potential mitigating role of ESG factors, we observe these negative implications to be less severe for high ESG-rated issuers and, specifically, for firms scoring high in the Environmental and Social dimensions. Our study demonstrates that firms more engaged in ESG practices are more resilient to the GPR's adverse effect on stock price crash risk.

Keywords: Geopolitical risk; Crash risk; Stock performance; ESG; Environmental performance (search for similar items in EconPapers)
Date: 2024
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (10)

Downloads: (external link)
http://www.sciencedirect.com/science/article/pii/S105752192300474X
Full text for ScienceDirect subscribers only

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:eee:finana:v:91:y:2024:i:c:s105752192300474x

DOI: 10.1016/j.irfa.2023.102958

Access Statistics for this article

International Review of Financial Analysis is currently edited by B.M. Lucey

More articles in International Review of Financial Analysis from Elsevier
Bibliographic data for series maintained by Catherine Liu ().