ABSTRACT

The global environment is increasingly unstable. Recent Middle East conflicts and the ongoing war in Eastern Europe pose geopolitical risks that disrupt resource prices, supply chains and markets, affecting businesses and individuals alike. The goal of this study is to analyse if there is a relationship between these geopolitical risks and the fluctuations of a company’s financial performance. This is done through a test of five ratio-specific hypotheses using a yearly panel GLS model for 40 NASDAQ firms, for the period 2017–2024. The results in this study found that there are rare occasions of statistical significance regarding some of the company’s financials and geopolitical risk, but they are later ruled out when introducing control variables. There are only individual cases in which geopolitical risks are shown to effect company financials, specifically in the cases of the firms’ net margins and earnings per share. This finding signifies that geopolitical risk is not directly correlated with variations in company financials, apart from some specific cases. The practical implications of these findings highlight the necessity of understanding the indirect connection between company financials and geopolitical risk as well as certain ways to hedge the effects of these risks on certain areas like creating “EPS buffers”, integrating GPRI into stress tests for EPS, creating a threshold of GPRI variance specific for each company, based on which to prompt a reassessment of earnings forecasts and prepare companies for the potential impacts.