Geopolitical risk, energy market volatility, and corporate energy dependence: The role of green Total factor productivity and decentralized top management team network

Abstract

Most recently, geopolitical tensions have been escalating, as shown by the Russia-Ukraine war and Palestine-Israel conflict, yet there is still lack of understanding in the current literature of how firms strategically respond to the resulting energy market volatility at the micro-level. This research gap undermines the ability to develop effective corporate resilience strategies against these joint shocks. This study addresses this pressing research gap by investigating geopolitical risk-energy price volatility linkages on corporate energy dependence with data from 1739 Chinese non-financial firms from 2013 to 2022. We develop a novel Self-Attention-GARCH-Wavelet-Copula model to quantify dynamic geopolitical-energy market interactions. Extending the resource dependence theory to a micro-level analysis, we reveal that firms strategically mitigate external vulnerabilities by enhancing green total factor productivity (GTFP), which serves as a critical mediator that transforms external constraints into opportunities. Furthermore, decentralized top management teams significantly enhance this adaptation mechanism through enhanced cognitive diversity and environmental scanning. Institutional arrangements and industrial structures fundamentally determine the adaptive capabilities of firms, with non-state and non-energy-intensive firms showing more strategic flexibility. Theoretically, we advance the resource dependence theory by proposing a geopolitical-energy dependency framework that identifies micro-level adaptation pathways that have been previously overlooked. Our findings provide crucial insights for executives to implement systematic monitoring systems, prioritize green productivity initiatives, and develop decentralized governance structures. Policymakers should establish sector-specific warning systems, offer targeted subsidies for GTFP toward input optimization and pollution reduction, and incentivize diversity in top management teams to increase organizational resilience against geopolitical energy disruptions.