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Systemic political risk

Author

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  • Chuliá, Helena
  • Estévez, Marc
  • Uribe, Jorge M.

Abstract

Political risk impacts firm-level risk, influencing funding costs, cash holdings, and capital structure choices. Traditional approaches to political risk rely on aggregate indicators, like economic policy uncertainty proxies. In contrast, our study examines how political risk spreads among individual US firms and sectors using network analysis and systemic risk indicators. This approach identifies crucial and vulnerable actors, not possible with aggregate proxies. We demonstrate the spread of political risk among firms and establish the utility of monitoring neighboring firms to predict potential political risk for a specific firm. Thus, firm-level political risk is not just an idiosyncratic concern but also a systemic one. Additionally, we find that the most central political risk actors are the most sensitive to economic cycles.

Suggested Citation

  • Chuliá, Helena & Estévez, Marc & Uribe, Jorge M., 2023. "Systemic political risk," Economic Modelling, Elsevier, vol. 125(C).
  • Handle: RePEc:eee:ecmode:v:125:y:2023:i:c:s0264999323001876
    DOI: 10.1016/j.econmod.2023.106375
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    References listed on IDEAS

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    More about this item

    Keywords

    Political risk; Policy uncertainty; Networks; Granger causality; Systemic risk;
    All these keywords.

    JEL classification:

    • C45 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods: Special Topics - - - Neural Networks and Related Topics
    • D8 - Microeconomics - - Information, Knowledge, and Uncertainty
    • G28 - Financial Economics - - Financial Institutions and Services - - - Government Policy and Regulation
    • G32 - Financial Economics - - Corporate Finance and Governance - - - Financing Policy; Financial Risk and Risk Management; Capital and Ownership Structure; Value of Firms; Goodwill
    • H32 - Public Economics - - Fiscal Policies and Behavior of Economic Agents - - - Firm

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