Beyond Geopolitical Risk: Financial Opacity and the Moderating Role of Financial Constraints

Geopolitical risk (GPR) has gained increasing prominence in financial markets, given the significant influence of political events on corporate decision-making and investor behavior. This study examines the effect of GPR on financial opacity (FO) and investigates the moderating role of financial constraints in this relationship. This study uses a sample of firms listed on the Egyptian Stock Exchange from 2011 to 2025. Moreover, empirical evidence investigates the moderating role of financial constraints on such relationships. The study employs the Instrumental Variables-Generalized Method of Moments (IV-GMM) regression technique. Furthermore, robustness tests are used to validate the findings by employing another method, the Instrumental Variables-Two-Stage Least Squares (IV-2SLS) estimator, and using alternative measures of GPR and FO. The results show that geopolitical risk has a significant positive effect on financial opacity. Moreover, the findings indicate that financial constraints moderate this relationship by weakening it. Furthermore, the results of the additional analysis demonstrated the robustness and accuracy of the results of the baseline analysis. The study contributes to the literature on GPR and financial opacity by providing, to the best of the researchers’ knowledge, the first study that examines the relationship between GPR and financial opacity in an emerging market like Egypt. Furthermore, the study contributes to a deeper understanding of the role of the financial conditions of Egyptian companies in influencing the relationship between GPR and financial opacity. Our findings suggest that investors, creditors, and regulators should pay closer attention to firms’ financial transparency during periods of heightened GPR.