Geopolitical Risk and Firm Profitability in Complex Socio-Economic Systems: A Heterogeneous Dynamics Perspective

Abstract

This paper investigates how geopolitical risk influences firm profitability worldwide. Using a global panel of 7126 listed companies from 2013 to 2023, the analysis reveals that geopolitical shocks do not affect firms uniformly. Less profitable and financially fragile firms experience the strongest declines in profitability when geopolitical tensions rise, while more profitable firms show greater resilience and, in some cases, strategic gains. The results also indicate that financial structure, liquidity, tangibility, and innovation capacity explain much of this heterogeneity, highlighting that vulnerability is rooted in both balance sheet fragility and adaptive capability. These findings suggest that geopolitical instability reinforces performance asymmetries across firms and industries, with implications for corporate strategy, investor behavior, and financial stability in an increasingly uncertain global environment.