Geopolitical uncertainty and firm tail risk: Evidence from energy-focused economies

This study investigates the relationship between national geopolitical risk (GPR) and firm-level tail risks, including total tail risk, systematic tail risk, and idiosyncratic tail risk, using a comprehensive global dataset comprising 19,823 firms across 14 countries from 1990 to 2019. The sample includes energy-focused economies, where geopolitical tensions often intersect with national energy strategies and global resource dependencies. The findings indicate that geopolitical risk significantly increases total and idiosyncratic tail risks while reducing systematic tail risk, suggesting a redistribution of risk exposure under geopolitical uncertainty. Moreover, subsample analysis reveals that the observed effects are primarily driven by non-energy sector firms and oil-importers. Despite their inherent exposure to geopolitical risks, energy firms exhibit resilience, likely due to advanced risk management practices, government interventions, and the counterbalancing effects of energy price fluctuations. These findings have important implications for policymakers and market participants, aiding in the development of strategies to better manage firm-specific tail risks in response to rising cross-country political instability. • GPR increases total and idiosyncratic tail risks while reducing systematic tail risk. • GPR-Tail risk associations are more pronounced in non-energy sectors and oil-importing nations. • Energy firms show resilience due to hedging, state support, and energy price shifts. • Oil exporters are less affected by GPR due to gains from rising energy prices. • Results are robust to alternative measures, endogeneity tests, and model variations.