Sources and Transmission of Country Risk

Tarek Hassan, Jesse Schreger, Markus Schwedeler and Ahmed Tahoun

No 29526, NBER Working Papers from National Bureau of Economic Research, Inc

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 (i) 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 reductions in firm-level investment and employment. (ii) Risk transmitted from foreign countries affects the investment decisions of domestic firms. (iii) Heterogeneous currency loadings on perceived global risk can help explain the cross-country pattern of interest rates and currency risk premia.

JEL-codes: D21 F23 F3 F30 G15 (search for similar items in EconPapers)
Date: 2021-11
New Economics Papers: this item is included in nep-cmp, nep-ifn, nep-opm and nep-rmg
Note: AP CF EFG IFM ITI ME POL
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Citations: View citations in EconPapers (6)

Published as Tarek A Hassan & Jesse Schreger & Markus Schwedeler & Ahmed Tahoun, 2024. "Sources and Transmission of Country Risk," Review of Economic Studies, vol 91(4), pages 2307-2346.

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Journal Article: Sources and Transmission of Country Risk (2024)
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