Does geopolitical uncertainty affect corporate financing? Evidence from MIDAS regression

Joye Khoo and Adrian (Wai-Kong) Cheung ()

Global Finance Journal, 2021, vol. 47, issue C

Abstract: This paper investigates the effect of geopolitical uncertainty on (market) leverage ratio, debt maturity, and choice of debt source. Using a new monthly index of geopolitical uncertainty and annual data for corporate financing variables, we find that under geopolitical uncertainty firms tend to reduce debt and increase market leverage. We argue that this increase is driven by asymmetrical reductions in the numerator (total debt) and the denominator (total debt and equity) of the leverage ratio. Under geopolitical uncertainty, firms tend to shorten their debt maturity structure and—especially those firms with lower credit quality—to substitute bank debt for public debt.

Keywords: Geopolitical uncertainty; Market leverage; Debt maturity; MIDAS (search for similar items in EconPapers)
JEL-codes: D80 G32 (search for similar items in EconPapers)
Date: 2021
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (18)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:glofin:v:47:y:2021:i:c:s1044028320300053

DOI: 10.1016/j.gfj.2020.100519

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