{"title":"Does geopolitical risk matter for corporate investment? Evidence from emerging countries in Asia","authors":"Anh-Tuan Le , Thao Phuong Tran","doi":"10.1016/j.mulfin.2021.100703","DOIUrl":null,"url":null,"abstract":"<div><p>This paper examines the effect of geopolitical risk on corporate investment in emerging Asian countries. Using an extensive sample spanning 1995–2018, we find that geopolitical risk is negatively associated with corporate investment. Geopolitical risks in China and Russia have a greater impact on corporate investment, while a less significant influence is found in India and Turkey. Our findings are robust to using alternative measures of geopolitical risk, using alternative proxies of investment, even after controlling for endogeneity concerns by a two-stage least square estimation, a system generalized method of moments regression, and the incremental effect of geopolitical risk. The adverse impact of geopolitical risk on firm investment is more pronounced for firms with a higher degree of investment irreversibility. However, firms with greater cash holdings can better mitigate this negative impact. Overall, this paper shows that geopolitical risk is a crucial macrolevel shock influencing corporate investment.</p></div>","PeriodicalId":47268,"journal":{"name":"Journal of Multinational Financial Management","volume":null,"pages":null},"PeriodicalIF":2.9000,"publicationDate":"2021-12-01","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"https://sci-hub-pdf.com/10.1016/j.mulfin.2021.100703","citationCount":"39","resultStr":null,"platform":"Semanticscholar","paperid":null,"PeriodicalName":"Journal of Multinational Financial Management","FirstCategoryId":"96","ListUrlMain":"https://www.sciencedirect.com/science/article/pii/S1042444X2100027X","RegionNum":3,"RegionCategory":"经济学","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":null,"EPubDate":"","PubModel":"","JCR":"Q2","JCRName":"BUSINESS, FINANCE","Score":null,"Total":0}
引用次数: 39
Abstract
This paper examines the effect of geopolitical risk on corporate investment in emerging Asian countries. Using an extensive sample spanning 1995–2018, we find that geopolitical risk is negatively associated with corporate investment. Geopolitical risks in China and Russia have a greater impact on corporate investment, while a less significant influence is found in India and Turkey. Our findings are robust to using alternative measures of geopolitical risk, using alternative proxies of investment, even after controlling for endogeneity concerns by a two-stage least square estimation, a system generalized method of moments regression, and the incremental effect of geopolitical risk. The adverse impact of geopolitical risk on firm investment is more pronounced for firms with a higher degree of investment irreversibility. However, firms with greater cash holdings can better mitigate this negative impact. Overall, this paper shows that geopolitical risk is a crucial macrolevel shock influencing corporate investment.
期刊介绍：
International trade, financing and investments have grown at an extremely rapid pace in recent years, and the operations of corporations have become increasingly multinationalized. Corporate executives buying and selling goods and services, and making financing and investment decisions across national boundaries, have developed policies and procedures for managing cash flows denominated in foreign currencies. These policies and procedures, and the related managerial actions of executives, change as new relevant information becomes available. The purpose of the Journal of Multinational Financial Management is to publish rigorous, original articles dealing with the management of the multinational enterprise. Theoretical, conceptual, and empirical papers providing meaningful insights into the subject areas will be considered. The following topic areas, although not exhaustive, are representative of the coverage in this Journal. • Foreign exchange risk management • International capital budgeting • Forecasting exchange rates • Foreign direct investment • Hedging strategies • Cost of capital • Managing transaction exposure • Political risk assessment • International working capital management • International financial planning • International tax management • International diversification • Transfer pricing strategies • International liability management • International mergers.
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