Firm-level political risk and corporate leverage decisions

Gyimah, Daniel; Danso, Albert; Adu-Ameyaw, Emmanuel; Boateng, Agyenim

Abstract

This study examines the effects of firm-level political risk on firm leverage decisions and speed of adjustment. We uncover that firm-level political risk has a negative impact on a firm's total and long-term leverage. We also find that firms facing high political risk tend to prefer debts with short-term maturity. However, firm-level political risk is positively related to debt specialisation, suggesting that firms are more inclined to adopt fewer debt types when they face high political risk. Further analysis reveals that firms with high political risk are associated with a faster speed of adjustment to target than those with low political risk. Our results are robust to endogeneity concerns and the effects of financial crisis.

• Journal Article Type: Article
• Acceptance Date: Aug 30, 2022
• Online Publication Date: Sep 30, 2022
• Publication Date: Sep 30, 2022
• Deposit Date: Oct 19, 2022
• Publicly Available Date: Oct 1, 2024
• Journal: International Review of Financial Analysis
• Print ISSN: 1057-5219
• Publisher: Elsevier
• Peer Reviewed: Peer Reviewed
• Volume: 84
• Pages: 102354
• DOI: https://doi.org/10.1016/j.irfa.2022.102354
• Keywords: Economics and Econometrics; Finance; Firm-level political risk; leverage; debt maturity; debt specialisation; speed of adjustment; US
• Public URL: https://uwe-repository.worktribe.com/output/10100372
• Publisher URL: https://www.sciencedirect.com/science/article/abs/pii/S1057521922003040?via%3Dihub
• Additional Information: This article is maintained by: Elsevier; Article Title: Firm-level political risk and corporate leverage decisions; Journal Title: International Review of Financial Analysis; CrossRef DOI link to publisher maintained version: https://doi.org/10.1016/j.irfa.2022.102354; Content Type: article; Copyright: © 2022 Elsevier Inc. All rights reserved.