Impact of geopolitical risk on target debt ratio

Keshab Shrestha, Sheena Sara Suresh Philip and Karren Lee-Hwei Khaw

Finance Research Letters, 2024, vol. 60, issue C

Abstract: Geopolitical risks (GPR) expose firms to uncertainties that can affect business operations, corporate decisions, and outcomes. We hypothesize that higher GPR is associated with a lower firm's target debt ratio (TDR) because a higher GPR increases the probability of default. Consistent with our hypothesis, we find a significant negative association between GPR and TDR. Additionally, we observe a significant negative association between GPR and distance-to-default score, supporting our view that higher GPR is linked to a greater probability of default. Further heterogeneity analysis indicates that high-tech firms are more vulnerable to the adverse impact of GPR than low-tech firms.

Keywords: Geopolitical risk; Target debt ratio; Distance-to-default; High-tech firms (search for similar items in EconPapers)
JEL-codes: G32 G33 G34 G40 (search for similar items in EconPapers)
Date: 2024
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (3)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:finlet:v:60:y:2024:i:c:s1544612323013363

DOI: 10.1016/j.frl.2023.104964

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