Impact of geopolitical risk on target debt ratio

Keshab Shrestha; Sheena Sara Suresh Philip; Karren Lee Hwei Khaw

doi:10.1016/j.frl.2023.104964

Impact of geopolitical risk on target debt ratio

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

Department of Business Analytics (DBA)

School of Business
Monash University Malaysia

Research output: Contribution to journal › Article › peer-review

13 Citations (Scopus)

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.

Original language	English
Article number	104964
Journal	Finance Research Letters
Volume	60
DOIs	https://doi.org/10.1016/j.frl.2023.104964
Publication status	Published - Feb 2024

Keywords

Distance-to-default
Geopolitical risk
High-tech firms
Target debt ratio

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10.1016/j.frl.2023.104964

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title = "Impact of geopolitical risk on target debt ratio",

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 = "Distance-to-default, Geopolitical risk, High-tech firms, Target debt ratio",

author = "Keshab Shrestha and Philip, \{Sheena Sara Suresh\} and Khaw, \{Karren Lee Hwei\}",

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year = "2024",

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doi = "10.1016/j.frl.2023.104964",

language = "English",

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T1 - Impact of geopolitical risk on target debt ratio

AU - Shrestha, Keshab

AU - Philip, Sheena Sara Suresh

AU - Khaw, Karren Lee Hwei

PY - 2024/2

Y1 - 2024/2

N2 - 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.

AB - 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.

KW - Distance-to-default

KW - Geopolitical risk

KW - High-tech firms

KW - Target debt ratio

UR - https://www.scopus.com/pages/publications/85184677288

U2 - 10.1016/j.frl.2023.104964

DO - 10.1016/j.frl.2023.104964

M3 - Article

AN - SCOPUS:85184677288

SN - 1544-6123

VL - 60

JO - Finance Research Letters

JF - Finance Research Letters

M1 - 104964

ER -

Impact of geopolitical risk on target debt ratio

Abstract

Keywords

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