Does Perceived Geopolitical Risk Constrain Corporate Borrowing? Evidence From Korean Firms

ABSTRACT This paper investigates how geopolitical risk affects corporate borrowing using firm‐level data from Korea. We construct a novel perception‐based geopolitical risk index related to North Korea and estimate a dynamic panel model using a long‐difference instrumental‐variables approach. We find that higher geopolitical risk significantly reduces corporate borrowing. The effect varies across firms, with weaker responses among larger, more liquid, and more tangible firms, while more profitable firms reduce borrowing more strongly. The negative marginal effect of geopolitical risk varies over time, intensifying during periods of heightened tension. Thus, perception‐driven geopolitical risk from local media directly affects corporate borrowing in Korea.