Sources and Transmission of Country Risk

Tarek Hassan, Jesse Schreger, Markus Schwedeler and Ahmed Tahoun

The Review of Economic Studies, 2024, vol. 91, issue 4, 2307-2346

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 associated 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.

Keywords: Country risk; Contagion; Textual analysis; Earnings calls (search for similar items in EconPapers)
Date: 2024
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Citations: View citations in EconPapers (7)

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Working Paper: Sources and Transmission of Country Risk (2021)
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