Risk and Regulation: Executive and Shareholder Experiences of the Financial Crisis and Global Recession

• In Event: 4255 - Section on Economic Sociology Roundtables (1 hour)
  In Refereed Roundtable 60min: 3. Finance

Abstract

The mortgage securitization crisis of 2007-2008 and the global financial recession that followed it from 2008-2010 have been important subjects of research in the past eight years. Research has been conclusive as to the causes of the crises but less is known about the experiences of corporate actors and their agents during the unfolding crises and after their end. I explore how the language corporate executives and shareholders used in their interactions changed over the course of the financial crises. Guided by computational grounded theory, I conducted exploratory computational text analysis of a random subset of 5,000 transcribed quarterly earnings calls produced between 2006 and 2018. I used dynamic topic modeling to capture changes in topics under discussion over the time period of interest and to produce key terms for word vector analysis—to capture changes in meaning over time. Four related topics emerged from dynamic topic modeling, which I called “Risk Management,” “Investment Strategy,” “Pricing and Valuation,” and “Regulation and Product Development.” I find Risk Management is a more salient topic than Investment Strategy during the period of the financial crises and the period following the 2016 presidential election. Interestingly, I find Regulation and Product Development becomes a more common topic of discussion throughout 2007 but returns to its initial value by the time of the bankruptcy of Lehman Brothers in September 2008. I also find the meanings of regulation and risk change over time. Regulation is associated with uncertainty and risk prior to the crises and is viewed in a more general character. After the crises the meaning of regulation is close to specific regulatory agencies. Initially, other meanings of risk are most similar to ratings, but as the crises unfolded this meaning disappeared and was replaced by meanings of volatility and exposure.

Author

• John M. Towey, Harvard University