Geopolitical risk, proximity, and corporate cash holdings: Evidence from Korea

This study examines how geographic proximity shapes the impact of geopolitical risk on the cash-holding behavior of Korean firms. Geopolitical risk shocks in proximate partner countries induce stronger precautionary cash responses than comparable domestic shocks. Geopolitical risks associated with inter-Korean relations also influence firms’ liquidity decisions, even in the presence of limited and episodic economic integration. The semiconductor industry exhibits heightened sensitivity to foreign geopolitical risks, although the effects are not uniform across industries. Larger firms and firms with higher foreign ownership tend to hold lower cash reserves. Geopolitical risks in strategically and economically critical proximate countries emerge as a driver of firms’ liquidity policies, underscoring the importance of regional risk monitoring, governance quality, and targeted financial mechanisms for exposed industries. • Firms hold precautionary cash in response to geopolitical risk in proximate trade partners. • Semiconductor firms exhibit greater sensitivity, with heterogeneous effects across industries. • Larger firms and firms with foreign ownership hold lower cash reserves.