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A quantitative study on the impact of geopolitical risk on firm's capital structure
Schröder, Ivetta (2025) A quantitative study on the impact of geopolitical risk on firm's capital structure.
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| Abstract: | In an economy where globalization is an increasing trend, companies are exposed to a growing number of geopolitical risks. Because those risks heighten uncertainty for companies, firms need to take them into account when making decisions. A timely example that highlights the importance of considering geopolitical risks is U.S. President Donald Trump’s increase in tariffs, which has a significant impact on its trading its partners, such as China. This research examines the impact of geopolitical risks on financial decision-making by investigating how geopolitical risks influence firms' leverage. The research uses a quantitative approach by performing a regression analysis with a sample of 520 US-based firms over the last decade, a period characterized by a global pandemic, trade conflicts and regional wars. The results indicate that geopolitical risk has no statistically significant effect on the leverage of firms. Furthermore, this study shows that industry is a key determinant that influences capital structure decisions of firms. Companies operating in the U.S. do not restructure their capital structure in response to geopolitical risk but rather use other adjustments. This study demonstrates that geopolitical risks’ influence on leverage may be overstated in existing capital structure research and that the influence of geopolitical risks on leverage is context-based. |
| Item Type: | Essay (Bachelor) |
| Faculty: | BMS: Behavioural, Management and Social Sciences |
| Subject: | 85 business administration, organizational science |
| Programme: | International Business Administration BSc (50952) |
| Link to this item: | https://purl.utwente.nl/essays/106782 |
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