Impact of geopolitical risk on working capital management in companies listed on the Indonesia Stock Exchange (IDX)
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Dec 30, 2023
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Abstract
This research aims to test whether geopolitical risk affects the working capital of company management in Indonesia. By using panel data analysis, a total of 585 companies listed on the Indonesia Stock Exchange (BEI) were used as research objects. 4,044 data points were observed during the period 2013–2022 to analyze the influence of GPR (geological risk) on working capital management from three account approaches. Accounts Receivable, Accounts Payable, and Net Working Capital results show that when geopolitical tensions increase, this has a significant effect on the company's net working capital but does not have a significant impact on Accounts Receivable and Accounts Payable. Further studies are still needed to determine the extent to which geopolitical risks have an impact on company performance, especially working capital management. It is hoped that this research will be useful for policymakers to anticipate appropriate regulations in the future to help entrepreneurs and the country's economic growth. For practitioners, namely companies, business owners, and entrepreneurs, this research is expected to provide important information regarding the impact of geopolitical risk on companies, especially working capital management
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How to Cite
Handry, H., & Sung Suk, K. (2023). Impact of geopolitical risk on working capital management in companies listed on the Indonesia Stock Exchange (IDX) . Enrichment : Journal of Management, 13(5), 3588-3594. https://doi.org/10.35335/enrichment.v13i5.1753
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Sandra, S., & Kim, S. S. (2022). The Impact of Geopolitical Risk , State Ownership , and Group Affiliations on Indonesian Firms ’ Cash Reserves. 26(1), 1–25. https://doi.org/10.26905/jkdp.v26i1.6930
Tan, O. F. (2022). The Impact of Geopolitical Risk on Corporate Investment : Evidence from Turkish Firms The Impact of Geopolitical Risk on Corporate Investment : Evidence from Turkish Firms. 14(1). https://doi.org/10.21002/icmr.v14i1.1138
Zimon, G., & Tarighi, H. (2021). Effects of the COVID-19 Global Crisis on the Working Capital Management Policy: Evidence from Poland. Journal of Risk and Financial Management, 14(4). https://doi.org/10.3390/jrfm14040169
Balcilar, M., Bonato, M., Demirer, R., & Gupta, R. (2018). Geopolitical risks and stock market dynamics of the BRICS. Economic Systems, 42(2), 295–306. https://doi.org/10.1016/j.ecosys.2017.05.008
Boisjoly, R. P., Conine, T. E., & McDonald, M. B. (2020). Working capital management: Financial and valuation impacts. Journal of Business Research, 108(November 2018), 1–8. https://doi.org/10.1016/j.jbusres.2019.09.025
Caldara, D., & Iacoviell, M. (2022). Measuring Geopolitical Risk. In American Economic Review (Vol. 112, Issue 4). https://doi.org/10.1257/aer.20191823
Caldara, D., & Iacoviello, M. (2018). Measuring Geopolitical Risk. In International Finance Discussion Paper (Vol. 2018, Issue 1222). https://doi.org/10.17016/ifdp.2018.1222
Carney, M. (2016). Uncertainty, the economy and policy. Bank of England, June, 1–13.
Chang, C., & Yang, H. (2022). The role of cash holdings during financial crises ☆. Pacific-Basin Finance Journal, 72(February), 101733. https://doi.org/10.1016/j.pacfin.2022.101733
Cheng, C. H. J., & Chiu, C. W. (Jeremy). (2018). How important are global geopolitical risks to emerging countries? In International Economics (Vol. 156). CEPII (Centre d’Etudes Prospectives et d’Informations Internationales), a center for research and expertise on the world economy. https://doi.org/10.1016/j.inteco.2018.05.002
Colino, A. (2013). Conflict resolution processes, uncertainty and investment dynamics: Evidence for the basque country. Defence and Peace Economics, 24(3), 229–245. https://doi.org/10.1080/10242694.2012.673840
D, A. O. P. (2012). Effects of Product – Market Diversification Strategy on Corporate Financial Performance and Growth : An Empirical Study of Some Companies in Nigeria . 2(3), 199–210.
Datta, D., Londono, J. M., Sun, B., Beltran, D., Ferreira, T., Iacoviello, M., Jahan-Parvar, M. R., Li, C., Rodriguez, M., & Rogers, J. (2017). Taxonomy of Global Risk, Uncertainty, and Volatility Measures. International Finance Discussion Paper, 2017(1216), 1–46. https://doi.org/10.17016/ifdp.2017.1216
Department of Economics and Management Chair of Advanced Corporate Finance Net Working Capital fluctuations due to the Pandemic. (2022).
Glick, R., & Taylor, A. M. (2010). Collateral damage: Trade disruption and the economic impact of war. Review of Economics and Statistics, 92(1), 102–127. https://doi.org/10.1162/rest.2009.12023
Global, A., & Survey, C. E. O. (2013). Annual Global CEO Survey. Choice Reviews Online, 51(04), 51-2172-51–2172. https://doi.org/10.5860/choice.51-2172
Gupta, R., Gozgor, G., Kaya, H., & Demir, E. (2019). Effects of geopolitical risks on trade flows: evidence from the gravity model. Eurasian Economic Review, 9(4), 515–530. https://doi.org/10.1007/s40822-018-0118-0
Kotcharin, S., & Maneenop, S. (2020). Geopolitical risk and corporate cash holdings in the shipping industry. Transportation Research Part E: Logistics and Transportation Review, 136(July 2019), 101862. https://doi.org/10.1016/j.tre.2020.101862
Lee, C. C., & Wang, C. W. (2021). Firms’ cash reserve, financial constraint, and geopolitical risk. Pacific Basin Finance Journal, 65(November 2020), 101480. https://doi.org/10.1016/j.pacfin.2020.101480
Lu, Z., Gozgor, G., Huang, M., & Keung Lau, M. C. (2020). The impact of geopolitical risks on financial development: Evidence from emerging markets. Journal of Competitiveness, 12(1), 93–107. https://doi.org/10.7441/joc.2020.01.06
NguyenHuu, T., & Orsal, D. K. (2022). Geopolitical risks and financial stress in emerging economies. September, 1–21. https://doi.org/10.1111/twec.13529
Omar, A. M. A., Wisniewski, T. P., & Nolte, S. (2017). Diversifying away the risk of war and cross-border political crisis. Energy Economics, 64, 494–510. https://doi.org/10.1016/j.eneco.2016.02.015
Petrov, A., Hentov, E., & Zumbo, F. (2018). How Does Geopolitics Affect Financial Markets? August. https://bc.edu/matteo-iacoviello/gpr.htm#home
Practice, R. (2021). How global companies can manage geopolitical risk. July.
Price Water Coopers. (2018). The Anxious Optimist in the Corner Office. PricewaterhouseCoopers (PwC), 1–32.
Sandra, S., & Kim, S. S. (2022). The Impact of Geopolitical Risk , State Ownership , and Group Affiliations on Indonesian Firms ’ Cash Reserves. 26(1), 1–25. https://doi.org/10.26905/jkdp.v26i1.6930
Tan, O. F. (2022). The Impact of Geopolitical Risk on Corporate Investment : Evidence from Turkish Firms The Impact of Geopolitical Risk on Corporate Investment : Evidence from Turkish Firms. 14(1). https://doi.org/10.21002/icmr.v14i1.1138
Zimon, G., & Tarighi, H. (2021). Effects of the COVID-19 Global Crisis on the Working Capital Management Policy: Evidence from Poland. Journal of Risk and Financial Management, 14(4). https://doi.org/10.3390/jrfm14040169