Geopolitical conflict and firm bankruptcy risk

Tonoy Roy, Rubaiyat Ahsan Bhuiyan, Sarwar Ahmed and Mohammad Abdullah

Finance Research Letters, 2024, vol. 68, issue C

Abstract: This study examines the impact of geopolitical risk on corporate bankruptcy. We utilize a global dataset of 36,802 firms from 42 countries covering 2004-2022. Our baseline result indicates that geopolitical risk increases firm bankruptcy risk. Our results remain robust after controlling for endogeneity using 2SLS, propensity score, and entropy balancing techniques, as well as using alternative proxies. Our analysis shows that high cash flow and strong creditor rights help mitigate bankruptcy risk, while high leverage and aggressive earnings management stimulates it. Our findings provide insights for policymakers and industry practitioners to formulate effective strategies to mitigate bankruptcy risk in globalization.

Keywords: Geopolitical risk; Firm insolvency; Bankruptcy; Financial constraints; Earnings management (search for similar items in EconPapers)
Date: 2024
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Persistent link: https://EconPapers.repec.org/RePEc:eee:finlet:v:68:y:2024:i:c:s1544612324010353

DOI: 10.1016/j.frl.2024.106005

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