Political Uncertainty Exposure of Individual Companies: The Case of the Brexit Referendum

Hill, Patricia M.; Korczak, Adriana; Korczak, Piotr

doi:10.2139/ssrn.2888696

Cited by 14 publications

(23 citation statements)

References 13 publications

Supporting

Mentioning

Contrasting

Order By: Relevance

“…In addition, we aimed at putting a stronger emphasis on concepts discussed in the social network literature (Stuart and Sorenson, 2005), such as egocentric networks, the relative importance of non-local versus local linkages, and certain network features, such as diversity and connectivity. Secondly, they complement previous research (Clark and Wrigley, 1997;Dörry, 2017;Hill et al, 2019;Johns, 2016;Stam, 2007;Svensson et al, 2019) and address the call of Alvedalen and Boschma (2017) by illustrating that not all types of entrepreneurial actors respond to political uncertainty and institutional change in the same way. Rather, their strategic responses are influenced by their exposure to and capacity to cope with political uncertainties and potential institutional changes, which vary with regards to their business characteristics and egocentric network structures (Stuart and Sorenson, 2005).…”

Section: Discussionmentioning

confidence: 60%

“…Therefore, we consider EEs as consisting of a variety of actors who respond to uncertainty and institutional change in different ways. Hence, we focus on how actor-level responses differ based on companies' characteristics, such as size, age, degree of internationalisation, integration in complex value chains, and accumulated sunk costs (Clark and Wrigley, 1997;Hill et al, 2019;Stam, 2007), as well as on the structure of their egocentric networks (Stuart and Sorenson, 2005). In this regard, we consider anchor firms to play an important role in firms' egocentric networks and in the EE as a whole (Dörry, 2017;Johns, 2016;Svensson et al, 2019).…”

Section: Conceptual Frameworkmentioning

confidence: 99%

See 1 more Smart Citation

The impact of Brexit on London’s entrepreneurial ecosystem: The case of the FinTech industry

Sohns

Wójcik

2020

Environ Plan A

View full text Add to dashboard Cite

This paper analyses how different entrepreneurial actors respond to political uncertainty and changing institutional settings. Moreover, it discusses the impact of those actor-level responses on the resilience of entrepreneurial ecosystems (EEs), focusing on how they affect the diversity of and the connectivity among its actors. To address these questions, the paper examines how the decision of the United Kingdom to leave the European Union has influenced the financial technology (FinTech) industry in London, applying data collected from in-depth interviews, covering different groups of stakeholders in London’s FinTech industry, such as angel investors, banks, legal advisers, lobby organizations and private companies. Our results show that political uncertainty and the prospect of institutional change can trigger actor-level responses, which have the potential to modify the diversity as well as the local and non-local connectivity of an EE. Moreover, we demonstrate that the nature of strategic responses of entrepreneurial actors varies significantly, depending on their firms’ characteristics, such as age, size, product specialization and the structure of their egocentric networks. With regard to the latter, our results show that anchor firms play an important role in other firms’ egocentric networks and have the power to shape their strategic responses.

show abstract

Section: Discussionmentioning

confidence: 60%

Section: Conceptual Frameworkmentioning

confidence: 99%

The impact of Brexit on London’s entrepreneurial ecosystem: The case of the FinTech industry

Sohns

Wójcik

2020

Environ Plan A

View full text Add to dashboard Cite

show abstract

“…Using Brexit as an exogenous political event that can cause political uncertainty, Hill et al . () examine the variation in UK firms’ exposure to political uncertainty. The authors first construct two alternative measures of firm‐level uncertainty exposure in the context of Brexit, namely, the sensitivity of the firm's stock returns to changes in the probability of Brexit (i.e., the Brexit beta) and the firm's stock price reaction to the referendum result.…”

Section: Political Uncertainty and Corporate Policiesmentioning

confidence: 99%

“…Based on the two measures of uncertainty exposure and a sample of firms listed on the London Stock Exchange (LSE), Hill et al . () show that there is variation in individual firms’ uncertainty exposure relating to Brexit. Moreover, they find that more internationalized firms are less affected by the uncertainty arising from Brexit, suggesting that internationalization can be used as a diversification mechanism to help reduce firms’ domestic risk exposure.…”

Section: Political Uncertainty and Corporate Policiesmentioning

confidence: 99%

Political Uncertainty and Finance: A Survey

Dai

Zhang

2019

Asia-Pac J of Fin Stud

View full text Add to dashboard Cite

An emerging stream of literature investigates the impact of political uncertainty on financial markets. In this survey, we review this line of literature from four perspectives, namely, asset prices, corporate policies, financial intermediaries, and economy and households, suggesting that political uncertainty generally increases market friction and as a result changes corporate behavior and adversely affects the economy. At the end of the survey, we discuss a few future directions worth being explored in view of the relationship between political uncertainty and finance. most likely to occur if the old policy has led to unexpected low realized profitability. Therefore, policy change can increase firms' expected profitability, thereby pushing stock prices up, that is, the cash flow effect. However, due to the new policy's higher uncertainty, policy change can also increase discount rates, thereby pushing stock prices down, that is, the discount rate effect. The authors show analytically that, on average, the discount rate effect will outweigh the cash flow effect and stock prices will fall at the announcement of a government policy change. The reason is that positive announcement returns tend to be small as policy changes that have the potential to push stock prices up are mostly expected by investors. Moreover, as new policies introduce more uncertainty and raise the volatility of the stochastic discount factor, government policy changes will increase stock return volatilities and correlations.Closely related to P astor and Veronesi (2012, 2013) analyze the risk premium induced by political uncertainty. P astor and Veronesi (2013) extend the general equilibrium model developed by P astor and Veronesi (2012) in two key aspects. First, unlike P astor and Veronesi (2012) who assume political cost is unknown to investors, P astor and Veronesi (2013) allow investors to learn about the political costs of the new policies through the stream of political news. Second, P astor and Veronesi (2012) assume that all government policies are identical a priori, whereas P astor and Veronesi (2013) allow the government to choose from a set of heterogeneous policies. The impacts of both, the learning about political costs and policy heterogeneity, are larger in weak economic conditions when a policy change is more likely to happen.Accordingly, in P astor and Veronesi's (2013) analytic model, stock returns are driven by capital shocks, impact shocks, and political shocks, and correspondingly the equity risk premium can be decomposed into three components based on the three types of shocks. As the optimal choice for the government is to change its policy when the old policy is perceived as sufficiently unfavorable, the authors show analytically that the composition of the risk premium varies depending on the economic state. In weak economic conditions when the probability of a policy change is high, the equity risk premium is largely driven by the political risk premium. However, in strong economic conditions when a policy change ...

show abstract

“…When investors learned the referendum's outcome, they formed new expectations about the future of publicly listed firms. Stock price changes capture changes in investors' expectations about the direct and indirect consequences of Brexit for the cash flows of the firm and for its discount rate (Fisman, 2001;Hill et al, 2019;Davies and Studnicka, 2018). For this reason, we investigate the response of firms' equity prices to the Brexit vote; this response captures the market's assessment of a given firm's exposure to Brexit.…”

Section: Event Study: the Asset Market E↵ects Of Brexitmentioning

confidence: 99%