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<p>This paper investigates the effect of geopolitical risk (GPR) on Investment-Cash Flow Sensitivity (ICFS) of Indian manufacturing firms. Further, it examines whether firm’s Environmental, Social, and Governance (ESG) performance moderates the effect of such risk on the ICFS. Employing a dynamic panel system Generalised Method of Moments (GMM), the study analyses a data comprising 222 Indian manufacturing firms over the period 2013–2023. The results reveal that heightened geopolitical risk dampens corporate investment and amplifies the dependence of investment on internal cash flows, thereby increasing ICFS. Importantly, strong ESG performance attenuates this effect, reducing the sensitivity of investment to cash flow under geopolitical uncertainty. This study is the first to explore how ESG performance moderates the effect of geopolitical risk on ICFS in Indian manufacturing firms. Further, the subsample analysis highlights that the impact of ESG on GPR is more pronounced in high exposure firms. It offers fresh empirical evidence based on an emerging economy, extending existing literature and providing actionable insights for policymakers, investors, and corporate decision-makers amid global uncertainties.</p>

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Geopolitical risk and investment-cash flow sensitivity: the role of ESG performance

  • 期刊论文

  • 发表日期：

    2026年4月13日

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  • Sakti Ranjan Dash,
  • Maheswar Sethi,
  • Chandrika Prasad Das

摘要

This paper investigates the effect of geopolitical risk (GPR) on Investment-Cash Flow Sensitivity (ICFS) of Indian manufacturing firms. Further, it examines whether firm’s Environmental, Social, and Governance (ESG) performance moderates the effect of such risk on the ICFS. Employing a dynamic panel system Generalised Method of Moments (GMM), the study analyses a data comprising 222 Indian manufacturing firms over the period 2013–2023. The results reveal that heightened geopolitical risk dampens corporate investment and amplifies the dependence of investment on internal cash flows, thereby increasing ICFS. Importantly, strong ESG performance attenuates this effect, reducing the sensitivity of investment to cash flow under geopolitical uncertainty. This study is the first to explore how ESG performance moderates the effect of geopolitical risk on ICFS in Indian manufacturing firms. Further, the subsample analysis highlights that the impact of ESG on GPR is more pronounced in high exposure firms. It offers fresh empirical evidence based on an emerging economy, extending existing literature and providing actionable insights for policymakers, investors, and corporate decision-makers amid global uncertainties.