Trade policy uncertainty and firm risk taking

Wang, Hui; Shen, Huayu; Tang, Xiaoyi; Wu, Zhifang; Ma, Shuming

doi:10.1016/j.eap.2021.03.007

Cited by 25 publications

(14 citation statements)

References 42 publications

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“…Second, some studies have investigated risk during the COVID-19 crisis period, although most of these studies have focused on risk in the stock market [ 11 , 12 ]. To the best of our knowledge, this is the first study to investigate the impact of the pandemic on firm risk.…”

Section: Introductionmentioning

confidence: 99%

The impact of COVID-19 on firm risk and performance in MENA countries: Does national governance quality matter?

et al. 2023

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This study investigated the impact of the COVID-19 crisis on firm risk and performance in different country-level governance qualities in the MENA region. Analyzing a sample of 739 non-financial listed firms in 12 MENA countries for the period 2011–2020, we found that the COVID-19 crisis negatively impacted the performance of firms, especially low-performance firms, in most industries, and increased firm risk in general. Moreover, we found that national governance quality plays an important role in mitigating the negative impact of the COVID-19 crisis on firm operations. Specifically, national governance quality reduces the negative impact of the COVID-19 crisis on firm performance and the positive impact of the crisis on firm risk. The results are consistent with our contention that national governance quality contributes to creating a positive environment for businesses activities and reducing economic shocks.

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Section: Introductionmentioning

confidence: 99%

The impact of COVID-19 on firm risk and performance in MENA countries: Does national governance quality matter?

et al. 2023

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“…The literature shows that various uncertainty indicators, tightly related to geopolitical risk, exert a significant impact on business risk. In fact, firms face more complexity in defining policy-related decisions in the presence operating uncertainties and unexpected jumps of earning volatility (Mirza and Ahsan, 2020; Wang et al ., 2021; Zhao and Su, 2022).…”

Section: Methodsmentioning

confidence: 99%

Geopolitical uncertainty and the cost of debt financing: the moderating role of information asymmetry

Mokdadi,

Saadaoui

2023

JRF

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PurposeThis paper aims to study the impact of geopolitical uncertainty on corporate cost of debt and the moderating role of information asymmetry between creditors and borrowing firms.Design/methodology/approachThis study uses 5,223 firm-quarter observations on German-listed firms spanning 2010:Q1–2021:Q4. This study regresses the cost of debt financing on the geopolitical risk, accounting quality and other control variables. Information asymmetry is measured using the performance-matched Jones-model discretionary accrual and the stock bid-ask spread. It uses interaction terms to check if information asymmetry moderates the impact of geopolitical uncertainty on the cost of debts and control for the moderating role of business risk. For the sake of robustness check, it uses long-term cost of debt and bond spread as alternative dependent variables. In addition, this study executes instrumental variables regression and propension score matching to control for potential endogeneity problems.FindingsEstimation results show that geopolitical uncertainty exerts a positive impact on the cost of debt. This impact is found to be more important on the cost of long-term debts. Information asymmetry is found to exacerbate the positive impact of geopolitical risk on the cost of debt. These results are robust to the change of the dependent variable and to the mitigation of potential endogeneity. At high levels of information asymmetry, this impact is more important for firms belonging to “Transportation”, “Automobiles and auto parts”, “Chemicals”, “Industrial and commercial services”, “Software and IT services” and “Industrial goods” business sectors.Research limitations/implicationsGeopolitical uncertainty should be seriously considered when setting strategies for corporate financial management in Germany and similar economies that are directly exposed to geopolitical risks. Corporate managers should design a comprehensive set of corporate policies to improve their transparency and accountability during increasing uncertainty. Policymakers are required to implement innovative monetary and fiscal policies that take into consideration the heterogeneous impact of geopolitical uncertainty and information transparency in order to contain their incidence on German business sectors.Originality/valueDespite its relevance to corporate financing conditions, little is known about the impact of geopolitical uncertainty on the cost of debt financing. To the best of the authors’ knowledge, there is still no empirical evidence on how information asymmetry between creditors and borrowing firms shapes the impact of geopolitical uncertainty on the cost of debt. This paper tries to fill this gap by interacting two measures of information asymmetry with geopolitical uncertainty. In contrast with previous studies, this study shows that the impact of geopolitical uncertainty on the cost of debt is non-linear and heterogeneous. The results show that the impact of geopolitical uncertainty does not exert the same impact on the cost of debt instruments with different maturities. This impact is found to be heterogeneous across business sectors and to depend on the level of information asymmetry.

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“…The economic uncertainty brought about by the volatility of (i.e., uncertainty related to) trade costs (both tariffs and nontariffs) would make the regulatory environment unpredictable, and in turn, render firms reluctant in taking essential or costly decisions (e.g., Bloom, 2014). The unpredictable regulatory environment raises the risk premiums in various financial markets, and generates higher borrowing costs (e.g., Liu and Wang, 2022;Shabir et al, 2022), which increase firms' financial constraint and operational risk, and negatively affect their risk-taking (e.g., Wang et al, 2021). As periods of higher uncertainty reduce personal income and corporate profitability, investment becomes less attractive to the average household (e.g., Al-Thaqeb and Algharabali, 2019;Bloom, 2009;Pástor and Veronesi, 2012), and makes households less attractive to new market opportunities, price signals, or other incentives (Foote et al, 2000).…”

Section: Further Analysismentioning

confidence: 99%

Effect of AfT flows on Investment-Oriented Remittances flows

GNANGNON

2022

Preprint

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Despite the voluminous literature on the effect of Aid for Trade (AfT) flows on recipient countries' trade performance, little is known about the relationship between AfT flows and other capital flows to developing countries. This paper contributes to the literature by exploring the effect of AfT inflows on investment-oriented remittances inflows, notably through the channel of trade costs. Using an unbalanced panel dataset of 106 countries over the period 2002–2019, and the two-step system generalized method of moments, the empirical analysis has established several outcomes. AfT flows exert a positive effect on investment-oriented remittances flows, with the magnitude of this positive effect being higher in Least developed countries than in other countries, and in remittance-dependent countries. AfT flows stimulate investment-oriented remittances flows in countries that face higher trade costs. Finally, total AfT flows reduce investment-oriented remittances flows in countries that experience a higher volatility of the overall trade costs, but boost investment-oriented remittances in countries that improve the quality of trade measures. The analysis shows that AfT flows could be an important leverage for stimulating investment-oriented remittances flows, and promote the development of the private sector in beneficiary countries.

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Trade policy uncertainty and firm risk taking

Cited by 25 publications

References 42 publications

The impact of COVID-19 on firm risk and performance in MENA countries: Does national governance quality matter?

The impact of COVID-19 on firm risk and performance in MENA countries: Does national governance quality matter?

Geopolitical uncertainty and the cost of debt financing: the moderating role of information asymmetry

Effect of AfT flows on Investment-Oriented Remittances flows

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