How Computational Linguistics Can Reveal Company Strategy
- April 12, 2017
- CBR - Economics
Quantifying the economic cost of political uncertainty is difficult. There are few signs outsiders can use to understand what firms are thinking—and what they’ll do next—during times of perceived risk. But a group of researchers is turning to computational linguistics to crack the code.
The findings suggest that when a company spends a greater portion of its call discussing political risk, it’s more likely to make certain financial decisions that might mitigate that risk. “Firms that perceive risks associated with a particular political topic hire less and have less investments,” Hassan says. “These same firms then donate more and lobby more on the topics that they find concerning.”
Analyzing conference calls may be a particularly useful approach to gauging the effects of uncertainty because risk is not always felt industry-wide, and because companies often act to mitigate the perceived risks of new policies well before those policies are in place.
This new use for the language of earnings calls comes at a particularly relevant time. Because of political developments such as Brexit and the election of Donald Trump, political risk “is at historically high levels,” Hassan says.
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