What do border disputes cost? Evidence from an emerging market

Abstract

PurposeThe study aims to examine the impact of six events related to the escalating Indo-China border conflicts in 2020 on the Indian stock market, including the role of firm-specific variables.Design/methodology/approachThis study employs an event-study method on a sample of 481 firms from August 23, 2019 to March 3, 2022. A cross-sectional regression is employed to examine the association between event-led abnormal returns and firm characteristics.FindingsThe results show that, although the individual events reflect heterogeneous effects on stock market returns, the average impact of the event categories is negative. The study also found that net working capital, current ratio, financial leverage and operating cash flows are significant financial performance indicators and drive cumulative abnormal returns. Further, size anomaly is absent, indicating that more prominent firms are resilient to new information.Research limitations/implicationsThe ongoing conflict between Russia and Ukraine is an example of how these disagreements can devolve into a disaster for the parties to the war. Although wars have an impact on markets at the global level, the impacts of border disputes are local. Border disputes are ongoing, and the study's findings can be used to empower investors to make risk-averting decisions that make their portfolios resilient to such events.Originality/valueThis study provides firm-level insight into the impacts of border conflicts on stock markets. The authors compare the magnitude of such impacts on two types of events, namely injuries and casualties due to country-specific border tensions and a government ban on Chinese apps. Key implications for policymakers, stakeholders and academics are presented.

Russia–Ukraine conflict and its impact on global inflation: an event study-based approach

“…(2022) highlighted the varying impacts of the India–China border clashes in May 2020 on sectoral performance in India, using an event study approach. Similarly, Kumari et al . (2022) investigated the impact of six major events during the Indo-China conflict.…”

“…In recent years, several researchers have studied the impact of geopolitical conflicts such as war, border and trade disputes on the performance of stock markets (Boubaker et al, 2022;Ferr andez Serrano and Angosto-Fern andez, 2022;Gu et al, 2021;Hassan et al, 2022;Hudson and Urquhart, 2014;Kumari et al, 2022Kumari et al, , 2023Schneider and Troeger, 2006). For example, Kumari et al (2023) examined the impact of the Russian invasion of Ukraine in Feb 2022 on European stock market returns.…”

“…Hassan et al (2022) highlighted the varying impacts of the India-China border clashes in May 2020 on sectoral performance in India, using an event study approach. Similarly, Kumari et al (2022) investigated the impact of six major events during the Indo-China conflict. Although the event's average impact is negative, the individual event reflects a heterogeneous impact on stock market returns.…”

Corporate vulnerability in the US and China during COVID-19: A machine learning approach

“… Boubaker, Goodell, Pandey, and Kumari (2022) , The conflict has generated negative anomalous returns in Russian invaded areas due to exposure to risk and reliance on trade, resulting in vulnerability to geopolitical concerns and trade reliance. The effect of border tension heterogeneously affects the stock market, while posing an overall negative effect, leading to increased risk and volatility resulting in higher returns during the post-event window ( Kumari, Pandey, Kumar, & Xu, 2022 ) ( Hassan, Boubaker, Kumari, & Pandey, 2022 ). However, in the case of an unexpected war's commencement, hostilities can cause stock prices to fall ( Brune, Hens, Rieger, & Wang, 2015 ).…”

The impact of Credit Suisse takeover on Indian banking and financial services sector stocks: an event study analysis

“…While contemporary studies have focused more on the impact of the Russia-Ukraine crisis on financial markets worldwide, there remains a gap in understanding the implications of the UBS-Credit Suisse takeover. The conflict between Ukraine and Russia serves as an illustration of how such disputes can escalate into catastrophic outcomes for the involved parties (Kumari et al, 2022). While a significant war can have a widespread impact on global markets, localized border disputes tend to exert influence only within their immediate regions (Kumari et al, 2022).…”