Academic literature on the topic 'Firm-Level political risk'

AbstractWe 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 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 captured neither 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.

When do governments impose costs on foreign firms? Many studies of foreign direct investment focus on incentives for government expropriation, but scholars are often forced to rely on indirect measures of expropriation to conduct empirical analyses. This article introduces a data set which includes information on over 5,000 political risk insurance contracts issued by the US Overseas Private Investment Corporation since 1961, and on all the claims filed by investors under these contracts. These detailed insurance data allow us to study the determinants of foreign investors’ losses from a variety of sources, including expropriation, inconvertibility, and violent conflict. To illustrate the benefits of these data for hypothesis testing, we adopt a comprehensive empirical approach and explore both shared and distinct causes across risk categories.

PurposeThis paper examines the relation between political sentiment and future stock price crash risk.Design/methodology/approachThis study employs firm-level political sentiment from earnings conference calls. The empirical analysis applies panel regressions on 40,254 US firm-year observations between 2002 and 2020, controlling for various firm-specific determinants of crash risk and firm-, industry- as well as time-fixed effects.FindingsThe study identifies a negative association between both the level and the change of political sentiment and stock crash risk. Further analysis shows that the predictive power of political sentiment is independent of either non-political sentiment or political risk and remains consistently strong during periods of either high or low economic policy uncertainty. Moreover, the predictive effect of political sentiment is more pronounced for firms with high litigation risk.Research limitations/implicationsThe evidence highlights the important role of political sentiment in predicting stock crash risk. The results are consistent with the signaling hypothesis that managers tend to use their tone in conference calls to convey informative messages on firm outlooks.Practical implicationsThe study provides a recommendation on risk management: soft information such as political and non-political sentiment in earnings conference calls is useful in managing stock crash risk. The study findings also call for careful consideration of social costs, such as stock crash risk, associated with political policies. Ill-conceived policies may lead to market crashes, which can potentially outweigh the upsides of well-meaning political reforms.Originality/valueTo the authors best knowledge, this is the first study to identify the effect of time-varying firm-level political sentiment conveyed in conference calls on stock price crash.

Increased transparency encourages management to perform efficiently which leads to increase profitability of Firm. Firms in Pakistan are exposed to political risk but they are adopting strategies for the risk management and performing well. The objective of this study is to examine the relationship between firm level transparency and firm value of non-financial firms in Pakistan. Sixty registered firms in KSE 100 Index of Pakistan were considered for analysis for the period 2014-2018. The researchers had developed an index for measuring the firm’s transparency (disclosure). Regression analysis technique was used to find important relationships between the variables. The results showed higher firm level transparency leads to accelerate firm financial value. The results provide singifcnat information about the issues under study. On the other hand higher level of transparency on firm level decreases firm value in Pakistani market. While inverse relationship was thus found amid political risk, transparency and firm financial value. This study had unveiled fact that mostly Pakistani firms are undervalued, riskier and slow growing which disclose more to combat with negative assessments in market from participants.

This paper investigates whether firm-level (idiosyncratic) political risk (PR) affects the relationship between corporate social responsibility (CSR) and firm value using a sample of 16,518 firm-year observations which correspond to 2055 unique firms belonging to the Russell 3000 Index over the sample period 2010–2020. Our main findings are as follows: First, firm-level PR does not affect firm value. Second, CSR is positively related to firm value, which is mainly driven by the social component of CSR. Finally, PR has no effect on the CSR–firm value relationship, regardless of the PR type. Our evidence suggests that firm-level PR is not priced in the financial market and as such it does not affect the CSR–firm value relationship. This is consistent with portfolio theory which suggests that only systematic risk is priced.

This study examines the relationship between firm-level political connections and stock price crash risk in Indonesia. It employs the difference-in-difference design to deal with the self-selection bias issue regarding the choice of the firms to become a politically connected firm. We use the sudden resignation of the former President of Indonesia, Suharto, to show that politically connected firms are associated with lower stock price crash risk and that the risk for these politically connected firms increased after Suharto resigned. Furthermore, we found evidence that these negative associations are more pronounced in firms with more complex firm structures.

Contexte et problématique Le monde évolue maintenant à une vitesse fulgurante. Les plus importants de ces changements se produisent dans les domaines politique et technologique. Les changements géopolitiques ont rapproché la politique et les entreprises. Les bouleversements politiques modifient sans cesse les circonstances dans lesquelles les individus, les sociétés et les entreprises évoluent, ce qui ne crée pas des marchés totalement isolés de la politique. La politique façonne et contraint les marchés par le biais de ses règles, normes et institutions. Les régimes commerciaux, les sanctions et les lois nationales, par exemple, modifient l'environnement des entreprises. Les revers tumultueux, tels que les guerres et les révolutions, et d'autres événements mineurs, tels que l'activisme social menacent toujours les entreprises. Par conséquent, les entreprises sont obligées de planifier et d'agir au-delà de leur environnement immédiat et étroit. La signification du risque politique a changé. Il y a quelques décennies, le risque politique pouvait se résumer en actions gouvernementales, telles que des réglementations liées à l'industrie. Aujourd'hui, cependant, les gouvernements ne sont plus le seul arbitre. Le risque politique du XXIe siècle a un sens plus large et plus complexe. Une guerre civile en Syrie entraîne une crise de réfugiés en Europe. Une manifestation anti-chinoise au Vietnam entraîne les ruptures de stock dans l'industrie du vêtement en Amérique du Nord. Rice et Zegart (2018) définissent le risque politique du XXIe siècle comme «la probabilité qu'une action politique puisse affecter de manière significative une entreprise». Les actions politiques soulignent donc l'impact croissant des facteurs générateurs de risques en dehors des institutions gouvernementales. Sur les marchés qui se caractérisent par une forte concurrence, les entreprises doivent prendre en compte tous les risques engendrés par les acteurs politiques, les journalistes, les militants dans la société civile, de réalisateurs de documentaires, etc. Historiquement, les révolutions, la nationalisation étaient au cœur du risque politique. Aujourd'hui les entreprises multinationales considèrent ce risque en tenant compte de plusieurs aspects. L'environnement politique du XXIe siècle constitue un important facteur externe d'incertitude pour les entreprises. Il peut donc limiter ou favoriser leurs possibilités de croissance et leur survie. Cette thèse aborde la relation entre le risque politique dans sa nouvelle définition et les décisions financières des entreprises. Jusqu'à présent, les études de recherche antérieures ne portaient que sur les mesures du risque politique au niveau des pays ou des secteurs d'activités en l'absence de mesures directes. Cette thèse retrace la façon dont le risque politique peut influer sur le comportement des entreprises américaines, en utilisant une nouvelle mesure de ce risque. Ma thèse est une compilation de trois études sur le risque politique et les choix financiers des entreprises. Dans mon premier article, j'examine l'effet du risque politique au niveau de l'entreprise sur les encaisses de trésorerie des entreprises. Le deuxième chapitre traite comment le risque politique affecte les crédits commerciaux inter-firmes. Dans le troisième chapitre, une nouvelle mesure du risque politique est développée et son effet sur les choix d'investissement et de financement des entreprises sera examiné
The world is now changing with lightening speed. The greatest of those changes are occurring in the political and technological spheres. Geopolitical shifts have brought politics and business closer together. Political upheavals are incessantly reshaping the circumstances in which individuals, societies, and companies operate, which doesn't make markets in total isolation from politics. Politics molds and constrains markets through its rules, norms, and institutions. Trade regimes, sanctions, and national laws, for instance, shape businesses' environment. Tumultuous reverses, such as wars and revolutions, and other minor events, such as social activism and cyber threats, still take firms by surprise. Therefore, firms are forced to plan and act beyond their immediate environment. The meaning of political risk has changed. A few decades ago, political risk could be summarized in governmental actions, such as industry-related regulations or assets seizing in dictatorships. Today, however, governments are no longer the only arbiter. The twenty-first-century political risk has a broader and more complicated meaning. A civil war in Syria results in a refugee crisis in Europe. An anti-Chinese protest in Vietnam fuels stock-outs in the clothing industry in America. Rice and Zegart (2018) define the twenty-first-century political risk as “the probability that a political action could affect a company in significant ways.” Put in the most elemental terms, political actions emphasize the growing impact of risk generators outside army barracks and party headquarters. In today's competitive markets, firms need to consider all risks engendered by the widening array of global political actors, journalists, social activists, documentary filmmakers, etc. Historically, revolutions, nationalization, seizure of assets were the political risk chorus. However, for the modern-day global firms consider this risk on much more and more aspects. Thus, companies, and particularly international firms see the market as a global place and they plan their strategies accordingly. SeaWorld story, among many others, points out that firms can be dramatically blindsided by political actions of small groups of people and the power of individuals charged by connective technologies. The twenty-first-century political environment is an important external factor of uncertainty for firms. It can, therefore, constrain or foster their growth opportunities and survival. This thesis addresses the relationship between the modern-day politics and corporate financial decisions. So far, prior research studies have only focused on country-level and sector-level measures of political risk in the absence of direct ones. This dissertation, instead, traces through the ways in which political risk can affect U.S. firms' behaviour, using a new firm-level proxy to measure the risk. My dissertation is a three-paper compilation of studies related to political risk and corporate finance. In my first paper, I examine the effect of firm-level political risk on corporate cash holdings and cash management. The second paper investigates whether firm-level political risk affects trade credit provision. Finally, the third paper tackles the issues in measurement of political risk and examines the effect of the novel political risk measure on corporate investment and financing decisions

In this study I examine how a firm’s exposure to political risk affects its merger & acquisition (M&A) activities. Consistent with the predictions from real options theory, I find that a firm is less likely to engage in M&A activities and less likely to take large M&A deals when its exposure to political risk is high. This effect is particularly evident when acquirers are taking diversified M&As or when acquirers are influential and dominant in their industry. I also find a positive relationship between the time to deal completion and the acquirer’s exposure to political risk. Additionally, given that prudence and conservatism are motivated by a higher-level of political risk, I show that this leads to acquirers paying lower bid premiums and experiencing a larger increase in shareholder value from M&A deals.
Thesis (MPhil) -- University of Adelaide, Adelaide Business School, 2020

The global political economy is a multilevel system of economic activities and regulation in which the domestic level continues to predominate—in other words, it is a global system comprising national capitalist economies. Nations differ in terms of the regulations and institutions that govern economic activity, an observation that is embodied in the so-called “varieties of capitalism” (VoC) literature. Contemporary VoC approaches highlight the significance of social and political institutions in shaping national economies, in stark contrast to neoclassical economics which generally ignores institutions other than markets or sees them as hindrances to the functioning of free markets. Three analytical premises inform the diverse conceptual frameworks within the VoC literature: the firm-based approach, national business systems approach, and the governance or “social systems of production” approach. The VoC literature offers three important contributions to our understanding of the global political economy. The first is that different sources of competitive advantage for firms and nations are institutionally rooted and not easily changed. The second contribution is that these distinct national arrangements give rise to different interests/preferences in how the global economy is constructed and managed. Finally, the VoC approaches provide a framework for analyzing long-term institutional changes in capitalist systems and the persistence of diverse forms of capitalism, including the global financial crisis of 2008–2009 that may usher in yet another epochal change in the “battle of capitalisms.”

This chapter looks at the rise of foreign direct investment (FDI), both as a new policy orientation, and as a process of capital flows with institutionally transformative consequences in postsocialist economies. While the previous chapters focused largely on political elites and macro-institutional change during the late socialist era, this chapter shifts attention to the impact of organizational processes at the firm level during the immediate postsocialist period in driving the transition towards globally integrated postsocialist industries. The chapter systematically examines patterns of institutional change from joint ventures to foreign direct investment across the region, and demonstrates the capacities of economies with the most diffuse experience with socialist proto-globalization in making the most rapid gains from globalization after economic liberalization post-1989.

Portugal does not have nuclear power plants but records an increasing production of radioactive waste from medical, industrial and research applications of radioactive materials in the form of sealed and unsealed sources; the country totals include also the spent fuel of one nuclear reactor for research purposes. Since radioactive waste management policies and practices in Portugal will have to comply with the Council Directive 2011/70/Euratom and the IAEA Joint Convention, the search for scientific and technological solutions to deal with radioactive wastes produced in the country started some years ago. The research carried out recently under the scope of a national funded project (KADRWaste, PTDC/CTE-GEX/82678/2006) represents a firm step in this commitment. Indeed, the transfer of methodologies tested and validated in this project allowed for improvement to a procedure to assess suitable sites to receive a near-surface repository for “Low and Intermediate Level Waste, Short Live and Long Live” (LILW-SL, LL) wastes in Portugal mainland. Although the main stages of the procedure can be of universal usage, details were designed according to the intrinsic geological, geomorphic and meteorological features of previously selected target-areas. All the requirements exhaustively listed in many reports of the IAEA were fulfilled and, in addition, the application of mineralogical, geochemical and textural criteria is strongly advised. The proposed procedure is based on a 5 key-steps approach preceded by clarification of the boundary conditions to be imposed, which are crucial to the inventory of various compulsory technical requirements. This analysis requires the adoption of stringent criteria, many of them of multi-disciplinary nature, including tests of vulnerability and assessment of uncertainty, besides the environmental impact risk. As a result, priority targets that are not excluded will integrate different classes and, depending on the existing knowledge, it will be possible to select locations suitable for the repository installation, taking into account also the political, social and administrative dimensions behind this decision.