Firm-Level Political Risk: Measurement and Effects*

Abstract We adapt simple tools from computational linguistics to construct a new measure of political risk faced by individual U.S. firms: the share of their quarterly earnings conference calls that they devote to political risks. We validate our measure by showing that 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…

• UO
  University of Chicago
• IF
  Institute for New Economic Thinking
• DF
  Deutsche Forschungsgemeinschaft

  Awards: TRR 266, 403041268