The hidden cost of geopolitical risk: Corporate violations in China

Yu Su

International Review of Financial Analysis, 2025, vol. 105, issue C

Abstract: Drawing on data from Chinese A-share listed companies between 2000 and 2020, this study examines the hidden costs of geopolitical risk, focusing on corporate violations. Findings suggest that heightened geopolitical risk significantly exacerbates corporate violations. Key mechanisms driving these hidden costs include weakened financial regulation, increased firm-specific idiosyncratic risk, and greater risk-taking behavior among firms. Further analysis indicates that firms with stronger reputations are better able to mitigate the effects of geopolitical risk on corporate violations, whereas firms with substantial overseas investments are more likely to engage in violations when geopolitical risk is heightened. This research highlights previously underexplored indirect effects of geopolitical instability on corporate governance, offering valuable policy implications for regulators and practitioners.

Keywords: Geopolitical risk; Corporate violations; Financial regulation; Idiosyncratic risk; Risk-taking (search for similar items in EconPapers)
Date: 2025
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Persistent link: https://EconPapers.repec.org/RePEc:eee:finana:v:105:y:2025:i:c:s1057521925005332

DOI: 10.1016/j.irfa.2025.104446

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