IDEAS home Printed from https://ideas.repec.org/p/bos/iedwpr/dp-332.html
   My bibliography  Save this paper

The Global Impact of Brexit Uncertainty

Author

Listed:
  • Tarek Alexander Hassan

    () (Boston University & NBER)

  • Stephan Hollander

    () (Tilburg University)

  • Laurence van Lent

    () (Frankfurt School of Finance and Management)

  • Ahmed Tahoun

    () (London Business School)

Abstract

Using tools from computational linguistics, we construct new measures of the impact of Brexit on listed firms in the United States and around the world; these measures are based on the proportion of discussions in quarterly earnings conference calls on the costs, benefits, and risks associated with the UK's intention to leave the EU. We identify which firms expect to gain or lose from Brexit and which are most affected by Brexit uncertainty. We then estimate effects of the different types of Brexit exposure on firm-level outcomes. We find that the impact of Brexitrelated uncertainty extends far beyond British or even European firms; US and international firms most exposed to Brexit uncertainty lost a substantial fraction of their market value and have also reduced hiring and investment. In addition to Brexit uncertainty (the second moment), we find that international firms overwhelmingly expect negative direct effects from Brexit (the first moment) should it come to pass. Most prominently, firms expect difficulties from regulatory divergence, reduced labor mobility, limited trade access, and the costs of post-Brexit operational adjustments. Consistent with the predictions of canonical theory, this negative sentiment is recognized and priced in stock markets but has not yet significantly affected firm actions.

Suggested Citation

  • Tarek Alexander Hassan & Stephan Hollander & Laurence van Lent & Ahmed Tahoun, 2020. "The Global Impact of Brexit Uncertainty," Boston University - Department of Economics - The Institute for Economic Development Working Papers Series dp-332, Boston University - Department of Economics.
  • Handle: RePEc:bos:iedwpr:dp-332
    as

    Download full text from publisher

    File URL: https://www.nber.org/papers/w26609
    Download Restriction: no

    References listed on IDEAS

    as
    1. Forbes, Kristin J. & Warnock, Francis E., 2012. "Capital flow waves: Surges, stops, flight, and retrenchment," Journal of International Economics, Elsevier, vol. 88(2), pages 235-251.
    2. Tarek A. Hassan & Thomas M. Mertens, 2017. "The Social Cost of Near-Rational Investment," American Economic Review, American Economic Association, vol. 107(4), pages 1059-1103, April.
    3. Nick Bloom & Stephen Bond & John Van Reenen, 2007. "Uncertainty and Investment Dynamics," Review of Economic Studies, Oxford University Press, vol. 74(2), pages 391-415.
    4. Hylke Vandenbussche & William Connell & Wouter Simons, 2019. "Global Value Chains, Trade Shocks and Jobs: An Application to Brexit," CESifo Working Paper Series 7473, CESifo Group Munich.
    5. Nicholas Bloom & Max Floetotto & Nir Jaimovich & Itay Saporta†Eksten & Stephen J. Terry, 2018. "Really Uncertain Business Cycles," Econometrica, Econometric Society, vol. 86(3), pages 1031-1065, May.
    6. Tim Loughran & Bill Mcdonald, 2016. "Textual Analysis in Accounting and Finance: A Survey," Journal of Accounting Research, Wiley Blackwell, vol. 54(4), pages 1187-1230, September.
    7. Fetzer, Thiemo, 2018. "Did Austerity Cause Brexit?," CAGE Online Working Paper Series 381, Competitive Advantage in the Global Economy (CAGE).
    8. Avinash K. Dixit & Robert S. Pindyck, 1994. "Investment under Uncertainty," Economics Books, Princeton University Press, edition 1, number 5474, March.
    9. Stephan Hollander & Maarten Pronk & Erik Roelofsen, 2010. "Does Silence Speak? An Empirical Analysis of Disclosure Choices During Conference Calls," Journal of Accounting Research, Wiley Blackwell, vol. 48(3), pages 531-563, June.
    10. Holger Breinlich & Elsa Leromain & Dennis Novy & Thomas Sampson & Ahmed Usman, 2018. "The Economic Effects of Brexit: Evidence from the Stock Market," Fiscal Studies, John Wiley & Sons, vol. 39(4), pages 581-623, December.
    11. Alabrese, Eleonora & Becker, Sascha O. & Fetzer, Thiemo & Novy, Dennis, 2019. "Who voted for Brexit? Individual and regional data combined," European Journal of Political Economy, Elsevier, vol. 56(C), pages 132-150.
    12. Rey, Hélène, 2015. "Dilemma not Trilemma: The Global Financial Cycle and Monetary Policy Independence," CEPR Discussion Papers 10591, C.E.P.R. Discussion Papers.
    13. Scott R. Baker & Nicholas Bloom & Steven J. Davis, 2016. "Measuring Economic Policy Uncertainty," The Quarterly Journal of Economics, Oxford University Press, vol. 131(4), pages 1593-1636.
    14. Ellen R. McGrattan & Andrea Waddle, 2020. "The Impact of Brexit on Foreign Investment and Production," American Economic Journal: Macroeconomics, American Economic Association, vol. 12(1), pages 76-103, January.
    15. Pindyck, Robert S, 1988. "Irreversible Investment, Capacity Choice, and the Value of the Firm," American Economic Review, American Economic Association, vol. 78(5), pages 969-985, December.
    16. Steinberg, Joseph B., 2019. "Brexit and the macroeconomic impact of trade policy uncertainty," Journal of International Economics, Elsevier, vol. 117(C), pages 175-195.
    17. Ronald B. Davies & Zuzanna Studnicka, 2017. "The Heterogeneous Impact of Brexit: Early Indications from the FTSE," CESifo Working Paper Series 6478, CESifo Group Munich.
    18. Eleonora Alabrese & Sascha Becker & Thiemo Fetzer & Dennis Novy & Sascha O. Becker, 2018. "Who Voted for Brexit? Individual and Regional Data Combined," CESifo Working Paper Series 7193, CESifo Group Munich.
    19. Benjamin Born & Gernot Müller & Moritz Schularick & Petr Sedláček, 2017. "The Costs of Economic Nationalism: Evidence from the Brexit Experiment," CESifo Working Paper Series 6780, CESifo Group Munich.
    20. Jesús Fernández-Villaverde & Pablo Guerrón-Quintana & Keith Kuester & Juan Rubio-Ramírez, 2015. "Fiscal Volatility Shocks and Economic Activity," American Economic Review, American Economic Association, vol. 105(11), pages 3352-3384, November.
    21. Redding, Stephen & Venables, Anthony J., 2004. "Economic geography and international inequality," Journal of International Economics, Elsevier, vol. 62(1), pages 53-82, January.
    22. Thiemo Fetzer, 2019. "Did Austerity Cause Brexit?," American Economic Review, American Economic Association, vol. 109(11), pages 3849-3886, November.
    23. Tarek A Hassan & Stephan Hollander & Laurence van Lent & Ahmed Tahoun, 2019. "Firm-Level Political Risk: Measurement and Effects," The Quarterly Journal of Economics, Oxford University Press, vol. 134(4), pages 2135-2202.
    24. Davies, Ronald B. & Studnicka, Zuzanna, 2018. "The heterogeneous impact of Brexit: Early indications from the FTSE," European Economic Review, Elsevier, vol. 110(C), pages 1-17.
    25. Alejandro Graziano & Kyle Handley & Nuno Limão, 2018. "Brexit Uncertainty and Trade Disintegration," NBER Working Papers 25334, National Bureau of Economic Research, Inc.
    26. repec:oup:econjl:v:129:y:2019:i:10:p:2722-2744. is not listed on IDEAS
    27. Sampson, Thomas, 2017. "Brexit: The Economics of International Disintegration," CEPR Discussion Papers 12301, C.E.P.R. Discussion Papers.
    28. Thomas Sampson, 2017. "Brexit: The Economics of International Disintegration," CESifo Working Paper Series 6668, CESifo Group Munich.
    29. Thomas Sampson, 2017. "Brexit: The Economics of International Disintegration," CEP Discussion Papers dp1499, Centre for Economic Performance, LSE.
    30. Stefania Garetto & Lindsay Oldenski & Natalia Ramondo, 2019. "Multinational Expansion in Time and Space," Boston University - Department of Economics - Working Papers Series WP2019-08, Boston University - Department of Economics.
    31. David Berger & Ian Dew-Becker & Stefano Giglio, 2017. "Uncertainty Shocks as Second-Moment News Shocks," NBER Working Papers 23796, National Bureau of Economic Research, Inc.
    32. Thomas Sampson, 2017. "Brexit: The Economics of International Disintegration," Journal of Economic Perspectives, American Economic Association, vol. 31(4), pages 163-184, Fall.
    33. Thiemo Fetzer, 2018. "Did Austerity Cause Brexit?," CESifo Working Paper Series 7159, CESifo Group Munich.
    34. Raymond Fisman & Eric Zitzewitz, 2019. "An Event Long-Short Index: Theory and Applications," American Economic Review: Insights, American Economic Association, vol. 1(3), pages 357-372, December.
    35. Ben S. Bernanke, 1983. "Irreversibility, Uncertainty, and Cyclical Investment," The Quarterly Journal of Economics, Oxford University Press, vol. 98(1), pages 85-106.
    36. Tim Loughran & Bill Mcdonald, 2011. "When Is a Liability Not a Liability? Textual Analysis, Dictionaries, and 10‐Ks," Journal of Finance, American Finance Association, vol. 66(1), pages 35-65, February.
    37. Sampson, Thomas, 2017. "Brexit: the economics of international disintegration," LSE Research Online Documents on Economics 86591, London School of Economics and Political Science, LSE Library.
    38. Raymond Fisman, 2001. "Estimating the Value of Political Connections," American Economic Review, American Economic Association, vol. 91(4), pages 1095-1102, September.
    39. Benjamin Born & Gernot J Müller & Moritz Schularick & Petr Sedláček, 2019. "The Costs of Economic Nationalism: Evidence from the Brexit Experiment," Economic Journal, Royal Economic Society, vol. 129(623), pages 2722-2744.
    40. Hill, Paula & Korczak, Adriana & Korczak, Piotr, 2019. "Political uncertainty exposure of individual companies: The case of the Brexit referendum," Journal of Banking & Finance, Elsevier, vol. 100(C), pages 58-76.
    41. Dario Caldara & Matteo Iacoviello & Patrick Molligo & Andrea Prestipino & Andrea Raffo, 2019. "The Economic Effects of Trade Policy Uncertainty," International Finance Discussion Papers 1256, Board of Governors of the Federal Reserve System (U.S.).
    Full references (including those not matched with items on IDEAS)

    More about this item

    Keywords

    :;

    NEP fields

    This paper has been announced in the following NEP Reports:

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:bos:iedwpr:dp-332. See general information about how to correct material in RePEc.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Program Coordinator). General contact details of provider: http://edirc.repec.org/data/decbuus.html .

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service hosted by the Research Division of the Federal Reserve Bank of St. Louis . RePEc uses bibliographic data supplied by the respective publishers.