GEOPOLITICAL RISK AND THE EFFECTS ON COMPANIES’ FINANCIAL PERFORMANCE
The global environment is increasingly unstable. Recent Middle East conflicts and the ongoing war in Eastern Europe pose geopolitical risks that disrupt resource prices, supply chains and markets, affecting businesses and individuals alike. The goal of this study is to analyse if there is a relat...
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| Main Author: | |
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| Format: | Article |
| Language: | English |
| Published: |
Oikos Institute - Research Center Bijeljina
2025-07-01
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| Series: | Collection of Papers New Economy |
| Subjects: | |
| Online Access: | https://conference.oikosinstitut.org/files/proc/Vol3No1/12.pdf |
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| Summary: | The global environment is increasingly unstable. Recent Middle East
conflicts and the ongoing war in Eastern Europe pose geopolitical risks that
disrupt resource prices, supply chains and markets, affecting businesses and
individuals alike. The goal of this study is to analyse if there is a relationship
between these geopolitical risks and the fluctuations of a company’s financial
performance. This is done through a test of five ratio-specific hypotheses using
a yearly panel GLS model for 40 NASDAQ firms, for the period 2017–2024.
The results in this study found that there are rare occasions of statistical
significance regarding some of the company’s financials and geopolitical risk,
but they are later ruled out when introducing control variables. There are
only individual cases in which geopolitical risks are shown to effect company
financials, specifically in the cases of the firms’ net margins and earnings per
share. This finding signifies that geopolitical risk is not directly correlated with
variations in company financials, apart from some specific cases. The practical
implications of these findings highlight the necessity of understanding the
indirect connection between company financials and geopolitical risk as well as
certain ways to hedge the effects of these risks on certain areas like creating “EPS
buffers”, integrating GPRI into stress tests for EPS, creating a threshold of GPRI
variance specific for each company, based on which to prompt a reassessment
of earnings forecasts and prepare companies for the potential impacts. |
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| ISSN: | 2831-1728 2831-1736 |