Real-Time Discovery of Corporate Risks

Abstract

We propose a new methodology to discover emerging corporate risks in real time by analyzing the text of quarterly earnings conference calls from 2008 to 2025. Our approach identifies bigrams (two-word phrases) within risk-related sentences whose usage surges significantly and then groups them into thematic topics. The method successfully recovers a timeline of major economic events, from the credit crisis in 2008 to macroeconomic and tariff uncertainty in 2025. We find that firms manage these risks differently. While macroeconomic uncertainty is associated with reductions in investment and employment, a rise in trade uncertainty is associated with capital expenditures and hiring. These expansions, however, are also associated with higher inflation: Higher trade uncertainty is, on average, followed by significant increases in producer prices. Our findings demonstrate that not all uncertainty is alike and suggest that the recent rise of macroeconomic and trade uncertainty together poses a stagflationary risk.

Introduction

From sudden tariff hikes and disease outbreaks to flare-ups in geopolitical tension, firms confront an ever-shifting menu of risks. Recent research shows that they navigate each threat differently—for example, economic policy uncertainty (Baker, Bloom, and Davis, 2016), COVID-19 uncertainty (Tarek Alexander Hassan et al., 2023), and Brexit uncertainty (Hassan, Hollander, Lent, et al., 2024)—so the macroeconomic impact of risk is anything but uniform. Yet at the aggregate level, economists and practitioners track a single measure of risk, such as the Chicago Board Options Exchange’s CBOE Volatility Index (VIX).

In this article, we propose a new methodology to identify emerging risks facing firms by applying natural language processing (NLP) techniques to earnings conference calls. Our methodology is based on identifying terminology that is increasingly used by executives in the context of describing risk. We uncover relevant risk topics over time and also identify how firms manage these risks in a unified framework.