Geopolitical risk and firm value: Evidence from emerging markets

We examine the impact of geopolitical risk (GPR) on firm value, focusing on non-financial firms from 14 emerging market countries. The evidence shows that heightening GPR is associated with reducing firm value. The country-specific idiosyncratic GPR, representing local geopolitical shocks, is the primary driver of the negative impact on firm value, whereas the global systematic GPR is irrelevant. The latter risk, however, has a high effect on firm value during the high GPR period. The idiosyncratic GPR plays a more significant role after the 9/11 terrorist attack and during high geopolitical uncertainty. We also find that firms reduce internal risk by holding more cash and debt during high external uncertainty, decreasing firm value.