The Political Economy of Financial Knowledge: Risk in the Information Technology Sector

• In Event: 50267 - Finance and Labor

Abstract

This paper examines the emergence and evolution of risk knowledge in financial markets, focusing on the information technology (IT) sector's risk disclosures in 10-K forms from 2005 to 2024. Using structural topic modeling, the paper analyzes the dynamics of risk themes and challenge conventional explanations of topic emergence based on domination, contagion, and legitimacy-seeking behaviors. Instead, the paper proposes an alternative framework grounded in Alfred Schutz’s concept of relevance, arguing that risk knowledge formation is primarily an endogenous process shaped by situated knowledge and organizational efforts to master organizational environments. The paper leverages structural topic modeling and its inherent properties to operationalize both exogenous and endogenous explanations. By analyzing topic prevalence over time, network structures of topic correlations, and firm-topic associations, the paper demonstrates how firms’ risk disclosures reflect unique trajectories of relevance and mastery rather than mere mimicry or conformity across industry or subsector levels. The findings reveal that while elements of domination, contagion, and legitimacy-seeking exist, they are insufficient to explain the observed patterns in risk disclosures. Instead, the paper finds evidence of firms actively elevating certain risk themes while denigrating others through endogenous processes of interpretation and strategic positioning. This research contributes to our understanding of risk knowledge formation in financial markets and offers a novel application of phenomenological concepts to quantitative textual analysis in the study of financial markets.

Author

• Besnik Pula, Virginia Polytechnic Institute and State University