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The Global Impact of Brexit Uncertainty

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  • Hassan, Tarek
  • Hollander, Stephan
  • van Lent, Laurence
  • Tahoun, Ahmed

Abstract

We propose a text-based method for measuring and analyzing the international propagation of uncertainty shocks at the firm level. We apply this method to estimate the impact of Brexit-related uncertainty and find widespread reverberations on listed firms in 81 countries. International firms most exposed to Brexit uncertainty not only significantly lost market value but also reduced hiring and investments. In addition to Brexit uncertainty (the second moment), we find that international firms overwhelmingly expected negative direct effects from Brexit (the first moment). Most prominently, firms expected difficulties from regulatory divergence, reduced labor mobility, and limited trade access.

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  • Hassan, Tarek & Hollander, Stephan & van Lent, Laurence & Tahoun, Ahmed, 2019. "The Global Impact of Brexit Uncertainty," CEPR Discussion Papers 14253, C.E.P.R. Discussion Papers.
    • Handle: RePEc:cpr:ceprdp:14253
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    6. Campello, Murillo & Cortes, Gustavo S. & d’Almeida, Fabrício & Kankanhalli, Gaurav, 2022. "Exporting Uncertainty: The Impact of Brexit on Corporate America," Journal of Financial and Quantitative Analysis, Cambridge University Press, vol. 57(8), pages 3178-3222, December.
    7. Agnes Norris Keiller, 2024. "Brexit and investment," CEP Discussion Papers dp2025, Centre for Economic Performance, LSE.
    8. Wittwer, Glyn & Anderson, Kym, 2020. "A Model of Global Beverage Markets," Journal of Wine Economics, Cambridge University Press, vol. 15(3), pages 330-354, August.
    9. Lopez-Lira, Alejandro, 2021. "Why do managers disclose risks accurately? Textual analysis, disclosures, and risk exposures," Economics Letters, Elsevier, vol. 204(C).
    10. Haoyuan Ding & Bo Pu & Tong Qi & Kai Wang, 2022. "Valuation effects of the US–China trade war: The effects of foreign managers and foreign exposure," Journal of Economic Surveys, Wiley Blackwell, vol. 36(3), pages 662-683, July.
    11. Cheng, Sirui & Hua, Xiuping & Wang, Qingfeng, 2023. "Corporate culture and firm resilience in China: Evidence from the Sino-US trade war," Pacific-Basin Finance Journal, Elsevier, vol. 79(C).
    12. Laurent Ferrara & Joseph Yapi, 2022. "Measuring exchange rate risks during periods of uncertainty," International Economics, CEPII research center, issue 170, pages 202-212.
    13. Azqueta-Gavaldon, Andres, 2023. "Political referenda and investment: Evidence from Scotland," European Journal of Political Economy, Elsevier, vol. 80(C).
    14. Tarek A. Hassan & Stephan Hollander & Laurence van Lent & Ahmed Tahoun, 2020. "Firm-Level Exposure to Epidemic Diseases: Covid-19, SARS, and H1N1," Working Papers Series inetwp119, Institute for New Economic Thinking.
    15. Ersahin, Nuri & Giannetti, Mariassunta & Huang, Ruidi, 2024. "Supply chain risk: Changes in supplier composition and vertical integration," Journal of International Economics, Elsevier, vol. 147(C).
    16. Richard A. Benton & J. Adam Cobb & Timothy Werner, 2022. "Firm partisan positioning, polarization, and risk communication: Examining voluntary disclosures on COVID‐19," Strategic Management Journal, Wiley Blackwell, vol. 43(4), pages 697-723, April.
    17. Patrizia Casadei & Simona Iammarino, 2021. "Trade policy shocks in the UK textile and apparel value chain: Firm perceptions of Brexit uncertainty," Journal of International Business Policy, Palgrave Macmillan, vol. 4(2), pages 262-285, June.
    18. Liu, Yi & Jin, Justin & Zhang, Zehua & Zhao, Ran, 2022. "Firm-level political sentiment and corporate tax avoidance," International Review of Financial Analysis, Elsevier, vol. 84(C).
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    20. Berg, Tobias & Saunders, Anthony & Schäfer, Larissa & Steffen, Sascha, 2021. "Brexit and the contraction of syndicated lending," Journal of Financial Economics, Elsevier, vol. 141(1), pages 66-82.

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    More about this item

    Keywords

    Brexit; Uncertainty; Sentiment; Machine learning; Cross-country effects;
    All these keywords.

    JEL classification:

    • D8 - Microeconomics - - Information, Knowledge, and Uncertainty
    • E22 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Investment; Capital; Intangible Capital; Capacity
    • E24 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Employment; Unemployment; Wages; Intergenerational Income Distribution; Aggregate Human Capital; Aggregate Labor Productivity
    • E32 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Business Fluctuations; Cycles
    • E6 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook
    • F0 - International Economics - - General
    • G18 - Financial Economics - - General Financial Markets - - - 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
    • G38 - Financial Economics - - Corporate Finance and Governance - - - Government Policy and Regulation
    • H32 - Public Economics - - Fiscal Policies and Behavior of Economic Agents - - - Firm

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