Effects of firm-level geopolitical risk on leverage

This study investigates the effects of firm-level geopolitical risk on the leverage of multinational companies listed in Taiwan from 2015 to 2021. The findings reveal a negative correlation between firm-level geopolitical risk and leverage level, indicating that firms reduce leverage to mitigate the risks associated with geopolitical risks. This negative correlation is stronger in firms with lower profitability, larger size, smaller irreversible investments and lower cash holdings. These results remain robust under two-stage least squares regression controlling for endogeneity and are consistent across alternative geopolitical risk measures and instrumental variables.