Study: Geopolitical tensions mute corporate transparency for foreign investors

From Washington to Beijing to Moscow, political tensions are shaping not just trade routes and defense strategies—but the very flow of financial information across borders. A new study, coauthored by Gies Business Assistant Professor of Accountancy Yifei Lu (right), Joanna Shuang Wu of the University of Rochester, and Yucheng (John) Yang of the Chinese University of Hong Kong, finds that when nations clash diplomatically, the world’s companies become more tight-lipped with foreign investors. In an era when global markets are increasingly intertwined with geopolitics, the research offers a stark warning: political friction doesn’t just move armies or tariffs—it also moves markets.

The study, “Does Foreign Investors’ Information Access Vary with Geopolitical Tensions? Evidence from Corporate Conference Calls,” published in the Journal of Accounting Research, provides some of the first large-scale evidence that global politics can directly affect corporate transparency. The paper shows that as geopolitical tensions rise, foreign investors find it measurably harder to access meaningful information from the firms they fund.

A Global Look at Investor Access

The researchers examined more than 82,000 corporate conference calls from 19 countries between 2002 and 2020, covering interactions among 1,760 country-pairs. They measured how frequently foreign investors asked questions—a proxy for their ability to gain information—and linked those figures to real-time data on geopolitical tension from the GDELT database, which tracks international conflict events.

“Our results were clear,” said Lu. “Rising geopolitical tension between two countries sharply reduces participation by foreign investors.”

A one-standard-deviation increase in bilateral tensions corresponded to an almost 40% decline in question-asking by foreign analysts or investors, suggesting a substantial drop in information exchange.

To test whether this pattern reflected causation rather than correlation, the authors turned to a real-world event: Russia’s 2014 annexation of Crimea. By comparing United Nations voting differences on the Ukraine resolution—an indicator of countries’ political alignment—they confirmed that the event meaningfully reshaped geopolitical relations, and, in turn, affected foreign investor participation. The analysis, they conclude, offers causal evidence that rising geopolitical tensions can constrain cross-border financial transparency.

“In addition to investor participation, we found that management responses during earnings calls became shorter, less detailed, and more negative as tensions increased,” Lu said. “Senior executives, like CEOs and CFOs, were also less likely to take questions from investors based in politically unfriendly countries. We call this ‘informational disengagement;’ it’s basically a mutual pulling back, where companies offer less information and foreign investors ask fewer questions.

The disengagement appears to have both supply-side and demand-side drivers. Firms may choose to withhold information to align with political sentiment or avoid offending domestic regulators, while investors may scale back efforts in countries seen as geopolitically risky.

China: A Case Study in Lost Translation

The study complements the global analysis with a case study focusing on China, where tensions with the U.S. and other nations have fluctuated dramatically in recent years. The authors analyzed Chinese firms with dual-class domestic (A-share) and foreign (B-share) listings, examining how disclosure practices changed as tensions rose.

Their findings were striking. When geopolitical frictions increased, foreign attendance at private meetings with company management dropped significantly, and firms were more likely to stop providing English translations of their mandatory filings. Some firms halted English translations altogether, while others shortened them. The pattern was especially pronounced when the Chinese-language originals contained politically sensitive words such as “Xinjiang,” “Huawei,” or “tariffs”

“This is an example of a supply-side effect, where companies actively curtail disclosures on sensitive topics, and the consequences show up in the market,” Lu said. “During high-tension periods, foreign-held B-shares traded at larger discounts compared with domestic A-shares, reflecting the higher information costs and uncertainty foreign investors faced.”

The implications for multinational corporations and global investors are wide-ranging. The research demonstrates that political relationships between nations influence corporate transparency, even in the absence of formal sanctions or trade restrictions.

“Transparency is not just a matter of regulation—it’s also a casualty of politics,” Lu said.

For global investors, that means accounting for geopolitical climate as a key component of market risk. For companies, the findings suggest that maintaining consistent disclosure practices could become a competitive advantage in turbulent times.

In an interconnected economy where information is currency, this study highlights an emerging reality: when diplomacy falters, even the language of finance grows quieter.