Geopolitical Risk and Corporate Debt Financing Costs: The Transmission Role of Supply Chain Uncertainty——Evidence from U.S.–China Trade Frictions and Chinese A-Share Listed Firms

Abstract

This paper examines whether the 2018 escalation of U.S.–China trade frictions increased the debt financing costs of Chinese listed firms and whether supply chain uncertainty mediates that effect. Using a continuous-treatment DID design on 41,675 Chinese A-share firm-year observations from 2010 to 2024, I interact firms’ pre-shock overseas-sales exposure with a post-2018 indicator. Firms with higher exposure experienced larger increases in borrowing costs after the shock (β = 0.014, p < 0.01), equal to about 14 basis points for each 10-percentage-point increase in exposure. Event-study estimates show no differential pre-trends and that the effects are concentrated in 2018–2020. The shock also increases supply chain uncertainty (β = 0.009, p < 0.01), and the Sobel test indicates a statistically significant but economically modest mediation effect (z = 2.406, p = 0.016). The effect is larger in non-state-owned firms, financially constrained firms, and firms with weaker supply chain resilience. Overall, the evidence suggests that a specific geopolitical trade shock can affect debt pricing through firm-level operational instability.