Exploring corporate geopolitical risk exposure — a heterogeneous geographic segment perspective

While prior studies that mostly treat geopolitical risk as a uniform macroeconomic factor affecting all companies within a country or economy equally during a specific period, this study argues that companies of the same nationality may have different degrees of geopolitical risk exposure, showing heterogeneity. This study investigates the association between the heterogeneity of corporate geopolitical risk exposure and company performance. This study develops a firm-specific geopolitical risk (FGPR) index by weighting the Geopolitical Risk (GPR) Index compiled by Caldara and Iacoviello (2022) with each company's geographic segment data. Investigating Taiwan listed companies from 2015Q1 to 2023Q4, we find a negative relationship between firm-specific geopolitical risk and corporate performance. This negative relation between firm-specific geopolitical risk and performance is more profound for companies with more concentrated geographic segments. Moreover, we find that firm-level geopolitical risk has a stronger relationship with corporate performance than the country-level measures used in previous studies, highlighting the importance of differentiating geopolitical risk exposure across firms.