Firm-level political risk and corporate leverage decisions

Gyimah, Daniel; Danso, Albert; Adu‐Ameyaw, Emmanuel; Boateng, Agyenim

doi:10.1016/j.irfa.2022.102354

Cited by 24 publications

(1 citation statement)

References 76 publications

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“…The political context and government regulation have a substantial influence on firms' economic environment and, therefore, on their decisions and policies. Recent literatures have discussed the effect of political uncertainty proxied by political risk on firms' decisions, such as leverage decisions (Gyimaha et al, 2022), excess cash holdings (Jeon et al, 2022), corporate investment (Choi et al, 2022) and innovation (Ahmed et al, 2022), but few literatures study the influence of firm-level political uncertainty on M&A decisions. For instance, Shen et al (2021) found that firm-level political uncertainty proxied by geopolitical risk positively affects M&A decisions through possible mechanisms of real option and prospect synergy effect.…”

Section: Empirical Literature and Hypothesismentioning

confidence: 99%

Political Risk and Deal Completion Likelihood

Rouine¹

2022

Accounting, Finance &Amp; Governance Review

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This study examines the impact of political risk on the likelihood of takeover completion and on deal duration. Using a sample of US deals between 2002 and 2019, we find a negative and significant relationship between the takeover completion likelihood and the bidder’s political risk. Our findings also suggest that firms take more time to complete deals when the bidders face higher political risk. As firm-level political risk breeds uncertainty, bidders faced with higher political risk are more likely to cancel bids before closing and delay deal completion. Political shocks can expose acquirers to default risk and make it costly for bidders to raise external funds to undertake mergers and acquisitions (M&As). Our results are robust, after controlling for potential endogeneity concerns.

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Section: Empirical Literature and Hypothesismentioning

confidence: 99%

Political Risk and Deal Completion Likelihood

Rouine¹

2022

Accounting, Finance &Amp; Governance Review

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The Impact of Firm‐Level Political Risk on Eco‐Innovation: The Moderating Effect of CEO Power

Owolabi,

Mousavi,

Gozgor

et al. 2024

Bus Strat Env

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This study examines the impact of firm‐level political risk on eco‐innovation at the firm level, particularly emphasizing the moderating role of CEO power in this relationship. Using a dataset from 33 countries from 2006 to 2022, we employ two‐step dynamic panel data estimations to address endogeneity concerns. The findings highlight a positive impact of political risk on eco‐innovation, which is further strengthened in the presence of a powerful CEO. This evidence implies that effective leadership from CEOs can assist firms in navigating political risks and advancing sustainable initiatives. The results remain robust across various specifications, including alternative measurements for firm‐level political risk. The study highlights the crucial role of CEOs in managing political risks and facilitating eco‐innovative practices within firms.

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Heterogeneous effect of economic policy uncertainty and firm financial performance: Empirical evidence from India

Chakradhar,

Gupta

2024

Manage Decis Econ

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Globally, high levels of economic policy uncertainty (EPU) have revamped the debate about its impact on different economic parameters of firms. In this regard, the literature exhibits three gaps. First, the effect of EPU on firm financial performance in an emerging economy context. Second, whether the influence of EPU on firm performance is asymmetric? Lastly, the moderating role of leverage in the relationship between EPU and firm performance. This paper fills all three gaps using the real options theory and investment irreversibility theory for India's NIFTY 100 firms over the period 2010–2019. The study applies several panel data econometrics models suitable to obtain comprehensive and robust results. Specifically, findings from the two‐step system GMM confirm that EPU negatively influences financial performance, which is significant for both accounting (return on assets, return on equity, net profit margin) and market (Tobin's Q) based measures. Moreover, the results of panel quantile regression reveal considerable heterogeneity in the EPU‐financial performance relationship. Further, higher levels of EPU appear to have unfavorable effects on excessively indebted firms. Overall, the study recommends that governments need to be alerted to the fact that mitigating EPU is crucial for promoting sustainable firm financial performance.

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Firm-level political risk and corporate leverage decisions

Cited by 24 publications

References 76 publications

Political Risk and Deal Completion Likelihood

Political Risk and Deal Completion Likelihood

The Impact of Firm‐Level Political Risk on Eco‐Innovation: The Moderating Effect of CEO Power

Heterogeneous effect of economic policy uncertainty and firm financial performance: Empirical evidence from India

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