Laurence van Lent
Frankfurt School of Finance and Management
60322 Frankfurt am Main
Institutional Affiliation: Frankfurt School of Finance and Management
NBER Working Papers and Publications
|November 2017||Firm-Level Political Risk: Measurement and Effects|
with Tarek A. Hassan, Stephan Hollander, Ahmed Tahoun: w24029
We adapt simple tools from computational linguistics to construct a new measure of political risk faced by individual US firms: the share of their quarterly earnings conference calls that they devote to political risks. We validate our measure by showing it correctly identifies calls containing extensive conversations on risks that are political in nature, that it varies intuitively over time and across sectors, and that it correlates with the firm’s actions and stock market volatility in a manner that is highly indicative of political risk. Firms exposed to political risk retrench hiring and investment and actively lobby and donate to politicians. These results continue to hold after controlling for news about the mean (as opposed to the variance) of political shocks. Interestingly, the v...