@misc{9245753,
  abstract     = {{This thesis examines whether host-country geopolitical risk leads foreign subsidiaries of
multinational enterprises (MNEs) to hold higher levels of cash. While the precautionary motive
predicts that firms accumulate liquid reserves when uncertainty rises, the MNE setting introduces
a competing force: parents can reallocate liquidity across affiliates through internal capital
markets, and agency considerations may further discipline cash accumulation, both potentially
overriding any local precautionary response. Whether the standalone-firm prediction extends to
MNE subsidiaries is therefore an empirical question.
Using a panel of 29,973 subsidiary-year observations on 4,043 foreign subsidiaries of 2,173
Scandinavian (Danish, Norwegian and Swedish) MNEs operating across 22 host countries over
2010-2022, drawn from S&P Capital IQ Pro, we estimate two-way fixed-effects regressions of
cash holdings on the Caldara and Iacoviello (2022) Geopolitical Risk index, controlling for
economic policy uncertainty, standard firm-level determinants, and host-country macroeconomic
conditions. We further test whether institutional distance, measured from the Worldwide
Governance Indicators, moderates the relationship.
On a cross-sectional basis, subsidiaries in higher-risk host countries hold significantly more cash,
consistent with prior evidence for standalone firms. Once subsidiary fixed effects absorb
time-invariant heterogeneity, however, the relationship reverses to a small negative point
estimate that is fragile under host-country clustering via wild cluster bootstrap, alternative
sample windows, and propensity-score matching. The interaction with institutional distance is
directionally consistent with the predicted amplification but likewise does not survive the most
conservative inference. We interpret the within-subsidiary null through the lens of MNE internal
capital markets: where the parent can meet a subsidiary's exposure to host-country risk through
intra-group liquidity, the precautionary response is taken at the group level rather than recorded
in the subsidiary's own cash ratio. The evidence is suggestive rather than conclusive, and we
identify several avenues for further research, in particular samples spanning emerging-market
hosts where institutional distance varies more independently of geopolitical risk, parents from
more institutionally diverse home countries, and direct measures of intra-group financial
integration.}},
  author       = {{Malmgren, Leo and Ozkan, Eray}},
  language     = {{eng}},
  note         = {{Student Paper}},
  title        = {{Geopolitical Risk and Cash Holdings of Subsidiaries - Does geopolitical risk in host countries affect cash holdings of foreign subsidiaries of MNEs?}},
  year         = {{2026}},
}