Geopolitical Shocks, Internationalization, and Stock Market Reactions: Evidence from Chinese A-Share Firms during the U.S.–China Trade War

Shu Fan

doi:10.6981/FEM.202601_7(1).0011

Authors

Shu Fan

DOI:

https://doi.org/10.6981/FEM.202601_7(1).0011

Keywords:

Geopolitical Risk; Trade War; Cross-Listing; Outward Foreign Direct Investment; Event Study.

Abstract

This study examines how geopolitical shocks influence stock market reactions among Chinese A-share firms, with a focus on the 2018–2020 U.S.–China trade war. Using a multi-event study framework combined with firm fixed-effects regressions, we analyze cumulative abnormal returns (CARs) around ten major escalating and easing announcements. The results show a pronounced asymmetry: escalation events trigger significantly negative CARs, whereas easing announcements generate positive yet short-lived responses. Firm-level internationalization, measured through overseas revenue exposure, cross-listing, and outward foreign direct investment, exhibits negative but statistically weak associations with CARs, suggesting that systemic uncertainty dominates firm-specific fundamentals during geopolitical conflicts. These findings enrich understanding of how global political tensions transmit through emerging financial markets and highlight the limited moderating role of internationalization in short-term valuation effects.

Downloads

Download data is not yet available.

References

[1] Baker, S. R., Bloom, N., & Davis, S. J. (2016). Measuring economic policy uncertainty. The quarterly journal of economics, 131(4), 1593-1636.

[2] Bris, A., Cantale, S., & Nishiotis, G. P. (2007). A breakdown of the valuation effects of international cross‐listing. European Financial Management, 13(3), 498-530.

[3] Buckley, P. J., & Casson, M. (1976). A long-run theory of the multinational enterprise. In The future of the multinational enterprise (pp. 32-65). London: Palgrave Macmillan UK.

[4] Buckley, P. J., Devinney, T. M., & Louviere, J. J. (2007). Do managers behave the way theory suggests? A choice-theoretic examination of foreign direct investment location decision-making. Journal of international business studies, 38(7), 1069-1094.

[5] Caldara, D., & Iacoviello, M. (2022). Measuring geopolitical risk. American economic review, 112(4), 1194-1225.

[6] Chen, Y., Fang, J., & Liu, D. (2023). The effects of Trump’s trade war on US financial markets. Journal of International Money and Finance, 134, 102842.

[7] Chengying, H., Rui, C., & Ying, L. (2022). US-China trade war and China’s stock market: an event-driven analysis. Economic research-Ekonomska istraživanja, 35(1), 3277-3290.

[8] Davies, R. B., & Studnicka, Z. (2018). The heterogeneous impact of Brexit: Early indications from the FTSE. European Economic Review, 110, 1-17.

[9] Egger, P. H., & Zhu, J. (2020). The US–Chinese trade war: An event study of stock-market responses. Economic Policy, 35(103), 519-559.

[10] Fama, E. F. (1970). Efficient capital markets: A review of theory and empirical work. The journal of Finance, 25(2), 383-417.

[11] Karolyi, G. A. (2006). The world of cross-listings and cross-listings of the world: Challenging conventional wisdom. Review of finance, 10(1), 99-152.

[12] Nerlinger, M., & Utz, S. (2022). The impact of the Russia-Ukraine conflict on energy firms: A capital market perspective. Finance Research Letters, 50, 103243.

[13] Ozdagli, A. K., & Wang, J. (2022). Uncertainty, Stock Prices and Debt Structure: Evidence from the US-China Trade War.

[14] Solnik, B. H. (1974). Why not diversify internationally rather than domestically?. Financial analysts journal, 30(4), 48-54.

[15] Temouri, Y., Driffield, N., & Bhaumik, S. K. (2016). A strategic perspective of cross-listing by emerging market firms: Evidence from Indonesia, Mexico, Poland and South Africa. Journal of International Management, 22(3), 265-279.

[16] Xu, J., Huang, S., Shi, L., & Sharma, S. S. (2021). Trade conflicts and energy firms' market values: evidence from China. Energy Economics, 101, 105434.

[17] Yu, J., Mao, Y., & Guo, P. (2025). Firm export, trade war, and R&D investment of family firm. Small Business Economics, 64(2), 531-547.