Leadership Under Pressure: CEO Traits, Geopolitical Risk, and Corporate Financial Strategy in ASEAN

Abstract

This study investigates the effects of geopolitical and political risks on banks’ financial policies, specifically capital structure and cash holdings, with CEO characteristics as a moderating factor. While prior research has largely examined these policies in isolation, few studies analyze them simultaneously in emerging markets, particularly Indonesia and Malaysia. By employing panel data from 2014 to 2024, geopolitical risk is captured via the GPR Index, political risk via the Political Risk Score, and financial policies are proxied by leverage and cash holdings, whereas CEO attributes are hand-collected from annual reports. The study tests the moderating role of executive characteristics using panel regression with interaction terms. The results reveal pronounced cross-country differences: in Indonesia, geopolitical risk decreases both leverage and cash holdings, reflecting a defensive strategy, while political risk increases them, suggesting opportunistic behavior. In Malaysia, the effect of geopolitical risk on leverage dissipates when CEO traits are accounted for, highlighting the influence of leadership discipline, and political risk affects cash holdings only under CEO moderation. These findings underscore that risk responses are context-dependent and shaped by executive attributes, enriching the literature on trade-off theory, risk management, and upper echelon perspectives. By linking geopolitical and political risks to both leverage and cash policies while emphasizing CEO moderation, this study contributes novel insights into corporate finance decision-making under uncertainty and demonstrates that similar external shocks can generate divergent outcomes across institutional contexts.