Graduation Year

2025

Document Type

Dissertation

Degree

Ph.D.

Degree Name

Doctor of Philosophy (Ph.D.)

Degree Granting Department

Business Administration

Major Professor

Christos Pantzalis, Ph.D.

Co-Major Professor

Jung Chul Park, Ph.D.

Committee Member

Jared Williams, Ph.D.

Committee Member

Dahlia Robinson, Ph.D.

Keywords

Flight-to-Safety, Geopolitical Risk, Internationalization, Political Connection, Risks

Abstract

This study examines how risks and stock returns of U.S. stocks in response to globalgeopolitical risk (GPR). Caldara and Iacoviello (2022) find heterogeneous stock returns responses to GPR across sectors, but they didn’t explore how GPR affects risks and whether it would be different for multinational corporations (MNCs) domestic corporations (DCs). In my dissertation, I examine four questions: (1) how systematic risk, idiosyncratic risk, and total risk, respond to changes in GPR and how these changes affect stock returns; (2) how the degree of internationalization (DOI) influences risks and stock returns; (3) whether internationalization amplifies or mitigates risk during periods of heightened GPR periods; and (4) whether political connections create value for MNCs or DCs under increased GPR. In Chapter 1, I find that while GPR has an insignificant effect on systematic and idiosyncratic risk, it significantly reduces total risk but increases stock returns, indicating a “flight-tosafety” phenomenon. Interestingly, internationalization does not significantly impact risks and returns, but during high GPR periods, it amplifies risks alongside higher returns as compensation. Besides, political connections built by lobbying, but not PAC contributions, help mitigate risks, indicating that firms can obtain critical and valuable information via direct connections. These findings highlight the role of internationalization during heightened GPR, while underscoring lobbying’s unique value in corporate risk management. The results also offer useful implications for firms in navigating GPR and for investors in making investment decisions.

In Chapter 2, I investigate the uneven impact of the “flight-to-safety” effect during periods of high GPR on U.S. firms, establishing that firm size and profitability are the primary drivers. Large and profitable firms act as safe havens, experiencing lower total risk and higher returns. However, internationalization exposes larger firms, particularly “Troubled Giants”, more to volatile environmentvi and thus experience substantial increases in systematic risk, idiosyncratic risk and total risk without commensurate increases in returns as “risk penalty”. Besides, firms in high GPR exposure industries with international operations face a similar penalty. However, firms in high GPR exposure industries can mitigate risks through strategic political connections, specifically lobbying. Additionally, I find that they benefit more from political connections during volatile times than those in low-exposure industries.

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