Does the impact of geopolitical risk on leverage vary based on executives’ cash compensation?

Abstract

This study explores how the relationship between geopolitical risk and firms’ debt ratio is moderated by the level of executives’ cash compensation. The study shows that firms with higher levels of executive cash compensation dampen the adverse effects of geopolitical risk on their debt ratios. These results remain robust across various measures of capital structure and estimation methods, highlighting the importance of executive pay structures in shaping firms’ responses to geopolitical risk.