Firm-level political risk and corporate leverage decisions |
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| Institution: | 1. University of Aberdeen Business School, Dunbar Street, Aberdeen, UK;2. Leicester Castle Business School, De Montfort University, Leicester, UK;3. Bristol Business School, University of the West of England, Bristol, UK;1. School of Economics and Management, North China Electric Power University, Beijing, China;2. School of Economics, Beijing Technology and Business University, Beijing, China;1. School of Finance and Accounting, Fuzhou University of International Studies and Trade, China;2. DeGroote School of Business, McMaster University, Canada;3. Xiamen National Accounting Institute, China;4. School of Management, Xiamen University, China;1. School of Statistics and Mathematics, Shandong University of Finance and Economics, Jinan, China;2. School of Urban and Regional Science, Shanghai University of Finance and Economics, Shanghai, China;3. Department of Applied Finance, Macquarie University, Sydney, Australia;4. School of Geography, Earth and Environmental Sciences, University of Birmingham, Birmingham, UK;1. Dongguk Business School, Dongguk University, 30, Pildong-ro 1-gil, Jung-gu, Seoul, Seoul 04620, Republic of Korea;2. Department of Economics and Finance, Soonchunhyang University, 22, Soonchunhyang-ro, Sinchang-myeon, Asan-si, Chungcheongnam-do 31538, Republic of Korea |
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| 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. |
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