Corporate responses to systemic risk: Talk and action

Yulin Liu, Junbo Wang, Fenghua Wen and Chunchi Wu

Pacific-Basin Finance Journal, 2024, vol. 87, issue C

Abstract: Using text-mining analyses, we find that firms are more concerned about systemic shocks, leading to a subsequent decrease in systemic risk exposure. This finding is robust to endogeneity using the entropy balance, instrumental variable, and quasi-natural experiment tests. A tighter regulatory environment and increased risk aversion are primary reasons for aligning firms’ slogans with their actions, i.e., reducing expenses and increasing cash holdings, to mitigate systemic risk exposure. Importantly, these risk-mitigating strategies produce positive outcomes, including increased earnings and decreased bankruptcy risk for firms. Results suggest regulators can cultivate voluntary reductions in systemic risk by increasing firms’ awareness.

Keywords: Systemic risk; Text mining; ΔCoVaR; Non-financial corporations; Macro-prudential regulation (search for similar items in EconPapers)
JEL-codes: G01 G32 G40 (search for similar items in EconPapers)
Date: 2024
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Persistent link: https://EconPapers.repec.org/RePEc:eee:pacfin:v:87:y:2024:i:c:s0927538x24002452

DOI: 10.1016/j.pacfin.2024.102493

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