Sources and Transmission of Country Risk

Hassan, T A, Schreger, J, Schwedeler, M and Tahoun, A (2024) Sources and Transmission of Country Risk. Review of Economic Studies, 91 (4). pp. 2307-2346. ISSN 0034-6527

Abstract

We use textual analysis of earnings conference calls held by listed firms around the world to measure the amount of risk managers and investors at each firm associate with each country at each point in time. Flexibly aggregating this firm-country-quarter-level data allows us to systematically identify spikes in perceived country risk (“crises”) and document their source and pattern of transmission to foreign firms. While this pattern usually follows a gravity structure, it often changes dramatically during crises. For example, while crises originating in developed countries propagate disproportionately to foreign financial firms, emerging market crises transmit less financially and more to traditionally exposed countries. We apply our measures to show that elevated perceptions of a country’s riskiness, particularly those of foreign and financial firms, are associated with significant falls in local asset prices, capital outflows, and an increased likelihood of a sudden stop.

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Item Type: Article
Subject Areas: Accounting
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© The Author(s) 2023. Published by Oxford University Press on behalf of The Review of Economic Studies Limited. All rights reserved. This article is published and distributed under the terms of the Oxford University Press, Standard Journals Publication Model

Date Deposited: 29 Aug 2023 13:00
Date of first compliant deposit: 30 Jan 2024
Subjects: Programmed texts
Investment appraisal
Financial risk
Last Modified: 05 Oct 2024 00:42
URI: https://lbsresearch.london.edu/id/eprint/2796
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