Firm-Level Political Risk: Measurement and Effects

Hassan, T A, Hollander, S, van Lent, L and Tahoun, A (2019) Firm-Level Political Risk: Measurement and Effects. Quarterly Journal of Economics, 134 (4). pp. 2135-2202. ISSN 0033-5533 OPEN ACCESS


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 vast majority of the variation in our measure is at the firm level rather than at the aggregate or sector level, in the sense that it is neither captured by the interaction of sector and time fixed effects, nor by heterogeneous exposure of individual firms to aggregate political risk. The dispersion of this firm-level political risk increases significantly at times with high aggregate political risk. Decomposing our measure of political risk by topic, we find that firms that devote more time to discussing risks associated with a given political topic tend to increase lobbying on that topic, but not on other topics, in the following quarter.

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Item Type: Article
Subject Areas: Accounting
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© 2019 President and Fellows of Harvard College & © 2019 Oxford University Press. This is a pre-copyedited, author-produced version of an article accepted for publication in The Quarterly Journal of Economics following peer review. The version of record: Tarek A Hassan, Stephan Hollander, Laurence van Lent, Ahmed Tahoun, (2019), The Quarterly Journal of Economics, Volume 134, Issue 4, Pages 2135–2202, is available online at: and at:

Date Deposited: 19 Jul 2019 08:13
Date of first compliant deposit: 10 Jul 2019
Subjects: Financial risk
Last Modified: 18 Apr 2024 01:21
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