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Executive Characteristics as Moderators: Exploring the Impact of Geopolitical Risk on Capital Structure Decisions

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Abstract

This study examines the relationship between geopolitical risk and firms’ capital structure decisions, focusing on the moderating effects of executive characteristics. Using US corporation data from 1992 to 2020, we find that firms adopt more conservative capital structure choices in response to higher exposure to geopolitical risk. Furthermore, we investigate how executives’ age and gender influence this relationship. Our findings indicate that firms with a higher proportion of female executives demonstrate heightened sensitivity to geopolitical risk, leading to more risk-averse financial decisions. In contrast, firms with older executives attenuate the adverse impact of geopolitical risk on financial leverage, suggesting a mitigating effect. The robustness of our results is confirmed through alternative measures of capital structure and estimation methods. We also identify risk aversion as a potential channel through which geopolitical risk affects capital structure choices and examine the role of executive characteristics in this channel using a moderated mediation model.

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  • Mona Yaghoubi, 2023. "Executive Characteristics as Moderators: Exploring the Impact of Geopolitical Risk on Capital Structure Decisions," Working Papers in Economics 23/14, University of Canterbury, Department of Economics and Finance.
    • Handle: RePEc:cbt:econwp:23/14
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    File URL: https://repec.canterbury.ac.nz/cbt/econwp/2314.pdf
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    Keywords

    Geopolitical risk; capital structure; executives age; executives’ gender and risk-aversion;
    All these keywords.

    JEL classification:

    • G32 - Financial Economics - - Corporate Finance and Governance - - - Financing Policy; Financial Risk and Risk Management; Capital and Ownership Structure; Value of Firms; Goodwill
    • G41 - Financial Economics - - Behavioral Finance - - - Role and Effects of Psychological, Emotional, Social, and Cognitive Factors on Decision Making in Financial Markets
    • D80 - Microeconomics - - Information, Knowledge, and Uncertainty - - - General
    • F50 - International Economics - - International Relations, National Security, and International Political Economy - - - General

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