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Geopolitical conflict and firm bankruptcy risk

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  • Roy, Tonoy
  • Bhuiyan, Rubaiyat Ahsan
  • Ahmed, Sarwar Uddin
  • Abdullah, Mohammad

Abstract

This study examines the impact of geopolitical risk on corporate bankruptcy. We utilize a global dataset of 36,802 firms from 42 countries covering 2004-2022. Our baseline result indicates that geopolitical risk increases firm bankruptcy risk. Our results remain robust after controlling for endogeneity using 2SLS, propensity score, and entropy balancing techniques, as well as using alternative proxies. Our analysis shows that high cash flow and strong creditor rights help mitigate bankruptcy risk, while high leverage and aggressive earnings management stimulates it. Our findings provide insights for policymakers and industry practitioners to formulate effective strategies to mitigate bankruptcy risk in globalization.

Suggested Citation

  • Roy, Tonoy & Bhuiyan, Rubaiyat Ahsan & Ahmed, Sarwar Uddin & Abdullah, Mohammad, 2024. "Geopolitical conflict and firm bankruptcy risk," Finance Research Letters, Elsevier, vol. 68(C).
    • Handle: RePEc:eee:finlet:v:68:y:2024:i:c:s1544612324010353
    DOI: 10.1016/j.frl.2024.106005
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