The Effect of Geopolitical Risk on Firm Risk: Default, Valuation, and Financing Costs: What is the Relationship?

Geopolitical risk leads to a few negative outcomes for firms.  Ever wonder what the empirical/observable relationship is between risk and a firm’s exposure to geopolitical risk and the probability of default, market valuation, and financing costs?

In this excellent piece by the research arm of the Bank of Italy, there is an observed feedback loop in the firm-level revenue-weighted geopolitical risk index created by the authors of the study.  And the impact of this loop has intensified since 2017.

Have a look.  (https://www.bancaditalia.it/pubblicazioni/qef/)

And more on the uses of the ICRG data and default: (https://www.jstor.org/action/doBasicSearch?Query=ICRG+and+default&so=rel)

I really appreciate these studies that offer more than interpretations (or ‘spins’) of geopolitical events but rather attach costs to a firm’s exposure to geopolitical risk.

Our data drives.

The PRS Group: Challenging Borders, Challenging Risk
www.PRSGroup.com
www.christophermckee.net

CHRISTOPHER MCKEE, PHD CHIEF EXECUTIVE

Christopher McKee is PRS’ CEO and Owner. An international political economist, global investor, entrepreneur, and author, Chris received his PhD from Queen’s University (Canada) and has been involved in the field of geopolitical risk, limited recourse financing, and private sector development for the past 25 years.