Impact of trade frictions on economic costs and financial risks

Zhifang Pan, Zhenqiu Qian and Shihui Cheng

Finance Research Letters, 2024, vol. 69, issue PA

Abstract: This paper constructs a Difference in Differences (DiD) model using 2018 to 2022 as the study period and April 2018 as the time point of the outbreak of trade friction in order to assess the impact of trade friction on the economic cost and financial risk of enterprises. The findings suggest that increased trade friction leads to higher economic costs and financial risks for firms. Specifically, trade frictions may negatively affect firms' operations and financial position through increased market uncertainty, supply chain disruption risk, tariff cost pass-through, and impact on competitive strategies. In addition, inventory share and management expense ratio play a significant mediating effect in the impact of trade frictions on economic costs and financial risks. The findings of this paper provide important empirical evidence for understanding the mechanism of trade friction's impact on firms and provide valuable references for policy makers and firms.

Keywords: Trade frictions; Economic costs; Financial risk; Double difference modeling (search for similar items in EconPapers)
Date: 2024
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Persistent link: https://EconPapers.repec.org/RePEc:eee:finlet:v:69:y:2024:i:pa:s1544612324011504

DOI: 10.1016/j.frl.2024.106121

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