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Keywords: firm-level GPR; geopolitical risk; bank debt; debt structure; precautionary liquidity; credit supply shocks
Abstract:
This paper employs natural language processing (NLP) techniques to quantify firm-level geopolitical risk (GPR) by analysing geopolitical sentiment expressed in corporate earnings conference calls. Using data from 4,754 firms across 39 developed and emerging economies from 2005 to 2024, we investigate the impact of GPR on firms' reliance on relationship-based financing, measured by the ratio of bank debt to total debt. Our findings reveal a short-term increase in dependence on bank debt in response to higher GPR, consistent with firms' precautionary liquidity motives. However, this effect reverses in the long run, suggesting that credit supply shocks ultimately dominate firms' decisions regarding their debt structure during prolonged periods of geopolitical tension.
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