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<p>Analyzing the Korean market dataset of 2,958 unique non-financial firms from 2001 to 2024, we examine how different dimensions of geopolitical risk shape firms’ liquidity management. We distinguish between localized geopolitical risk, rooted in inter-Korean tensions, and broader global risk. Using a panel regression framework, we find that localized risk increases firms’ cash holdings, consistent with precautionary motives, whereas global risk reduces cash reserves, suggesting that distant shocks are perceived as less immediate and may create growth opportunities. Decomposing global risk reveals that geopolitical acts exert strong negative effects, which dominate the positive impact of geopolitical threats. These effects are more pronounced among younger and non-manufacturing firms. Crisis-interaction tests with the COVID-19 and global financial crisis periods show that firms’ liquidity decisions are crisis-dependent. Mediation analysis indicates that firms’ long-term investment serves as a transmission channel linking geopolitical risk to cash decisions. Results remain robust across alternative cash measures, additional macro controls, and after addressing endogeneity. Overall, the findings highlight that firms adjust liquidity according to the source and proximity of geopolitical risk, underscoring the need for policies that strengthen short-term liquidity under localized tensions and enhance financing flexibility under global shocks.</p>

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Corporate cash holdings under geopolitical risk: Global versus localized effects

  • 期刊论文

  • 出版模式：

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  • 发表日期：

    2026年2月5日

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  • Fariha Jahan,
  • Doojin Ryu

摘要

Analyzing the Korean market dataset of 2,958 unique non-financial firms from 2001 to 2024, we examine how different dimensions of geopolitical risk shape firms’ liquidity management. We distinguish between localized geopolitical risk, rooted in inter-Korean tensions, and broader global risk. Using a panel regression framework, we find that localized risk increases firms’ cash holdings, consistent with precautionary motives, whereas global risk reduces cash reserves, suggesting that distant shocks are perceived as less immediate and may create growth opportunities. Decomposing global risk reveals that geopolitical acts exert strong negative effects, which dominate the positive impact of geopolitical threats. These effects are more pronounced among younger and non-manufacturing firms. Crisis-interaction tests with the COVID-19 and global financial crisis periods show that firms’ liquidity decisions are crisis-dependent. Mediation analysis indicates that firms’ long-term investment serves as a transmission channel linking geopolitical risk to cash decisions. Results remain robust across alternative cash measures, additional macro controls, and after addressing endogeneity. Overall, the findings highlight that firms adjust liquidity according to the source and proximity of geopolitical risk, underscoring the need for policies that strengthen short-term liquidity under localized tensions and enhance financing flexibility under global shocks.