Geopolitical Risk and Investment

Wang, Xinjie; Wu, Yangru; Xu, Weike

doi:10.2139/ssrn.3305739

Cited by 30 publications

(22 citation statements)

References 39 publications

Supporting

Mentioning

Contrasting

Order By: Relevance

“…There are several studies showing that risky events could increase the volatility of financial markets and decrease the return of risky assets (Ulrich, 2012; Brogaard and Detzel, 2015; Wang et al , 2020). Moreover, Altig et al (2020) show that COVID-19 creates great uncertainties and that more than half of the observed economic contractions are due to these COVID-induced uncertainties.…”

Section: Methodsmentioning

confidence: 99%

The COVID-19 pandemic and sovereign credit risk

Pan

Wang

et al. 2021

CFRI

Self Cite

View full text Add to dashboard Cite

PurposeThe purpose of this study is to examine the effects of the coronavirus disease 2019 (COVID-19) pandemic on sovereign credit default swap (CDS) spreads using a large sample of countries.Design/methodology/approachIn this paper, the authors use a wide set of the sovereign CDS data of 78 countries. To measure the magnitude of the COVID-19 pandemic, the authors use the daily change of confirmed cases collected from Our World in Data. They use panel regressions to estimate the impact of the COVID-19 pandemic on sovereign credit risk.FindingsThe authors show how sovereign CDS spreads have widened significantly in response to the COVID-19 pandemic. Based on the most conservative estimate, a 1% increase in COVID-19 infections leads to a 0.17% increase in sovereign CDS spreads. Furthermore, this effect is stronger for developing countries and countries with worse healthcare systems. Government policies partially offset the impact of the COVID-19 pandemic, although these same policies also lead to widening sovereign CDS spreads. Sovereign CDS spreads narrow dramatically several months after the outbreak of the COVID-19 pandemic. Overall, the results suggest that the ongoing COVID-19 pandemic has been a massive shock to the global financial stability.Originality/valueThis paper provides new evidence that COVID-19 widens sovereign CDS spreads. The authors further show that this widening effect is felt most strongly in developing economies.

show abstract

Section: Methodsmentioning

confidence: 99%

The COVID-19 pandemic and sovereign credit risk

Pan

Wang

et al. 2021

CFRI

Self Cite

View full text Add to dashboard Cite

show abstract

“…Evidence from Wang et al (2019) shows that firms are more likely to delay their investment during a period of elevated political uncertainty in a sample of US firms from 1987 to 2016. This result supports the real options theory, which suggests that the option value of delaying investment is better off for firms during a period of uncertainty.…”

Section: Literature Review and Hypotheses Developmentmentioning

confidence: 99%

The bright side of geopolitical risk: evidence from Chinese firms

Oanh

Hoang

2020

JFEP

View full text Add to dashboard Cite

Purpose The paper aims to investigate whether firms invest in corporate social responsibility (CSR) as a risk protection mechanism as the response to increased geopolitical risk (GPR). Design/methodology/approach The sample of this study includes non-financial listed firms on the Chinese stock market over 2000–2016. Several measures of CSR and GPR were used to examine the relationship between two factors. Further investigation is conducted to find out how increasing uncertainty in the business environment in both geopolitics and macroeconomic policy affects corporate decision-making regarding CSR. Findings GPR has a significant and positive effect on CSR, meaning that Chinese firms use CSR investment as an insurance mechanism against uncertainty arising from heightened geopolitical uncertainty. Further analysis indicates a negative joint effect of GPR and uncertainty in macroeconomic policy on CSR and shows that it can exhaust firms’ resources and offset their individual positive impacts on CSR at the extreme level of uncertainty. The findings are robust to the choices of proxies, model specifications and endogeneity concerns. Originality/value This study sheds light on the existing literature by providing empirical evidence on the positive relationship between GPR and CSR. The findings of this study support the risk management view, in which firms engage more in CSR as a form of insurance mechanism to react to geopolitical uncertainty. This is also the first empirical study investigating the joint effect of GPR and economic policy uncertainty on CSR.

show abstract

“…There exists a line of research that notes the economic effects of GPR. For instance, a several studies highlight that GPR effects economic growth and tourism [14], energy consumption [15], financial markets [16], and research and development [17,18].…”

Section: Introductionmentioning

confidence: 99%

Do Economic Policy Uncertainty and Geopolitical Risk Lead to Environmental Degradation? Evidence from Emerging Economies

et al. 2021

View full text Add to dashboard Cite

Since the turn of twenty first century, economic policy uncertainty (EPU) and geopolitical risk (GPR) have escalated across the globe. These two factors have both economic and environmental impacts. However, there exists dearth of literature that expounds the impact of EPU and GPR on environmental degradation. This study, therefore, probes the impact of EPU and GPR on ecological footprint (proxy for environmental degradation) in selected emerging economies. Cross-sectional dependence test, slope heterogeneity test, Westerlund co-integration test, fully modified least ordinary least square estimator, dynamic OLS estimator, and augmented mean group estimator are employed to conduct the robust analyses. The findings reveal that EPU and non-renewable energy consumption escalate ecological footprint, whereas GPR and renewable energy plunge ecological footprint. In addition, findings from the causality test reveal both uni-directional and bi-directional causality between a few variables. Based on the findings, we deduce several policy implications to accomplish the sustainable development goals in emerging economies.

show abstract

Geopolitical Risk and Investment

Cited by 30 publications

References 39 publications

The COVID-19 pandemic and sovereign credit risk

The COVID-19 pandemic and sovereign credit risk

The bright side of geopolitical risk: evidence from Chinese firms

Do Economic Policy Uncertainty and Geopolitical Risk Lead to Environmental Degradation? Evidence from Emerging Economies

Contact Info

Product

Resources

About