The Effect of War Risk on Managerial and Investor Behavior: Evidence From the Brussels Stock Exchange in the Pre-1914 Era

Abstract

With two news-based measures on war, I document that managers mitigated war risk through dividend cuts, arguably to establish a war chest. Moreover, I find that companies postponed their initial public offerings and that foreign companies were more likely to delist after the onset of wars. Investors reacted negatively to the increase in war news coverage. There is evidence of mean-reversion after a threat of war and a negative drift following an act of war. Finally, I highlight the importance of proximity to military conflicts. In general, the evidence indicates that both managers and investors became more risk averse as a consequence of war news.

Keywords: geopolitical risk, rare disasters, wars, equity premium, media coverage, the economist, initial public offering, stock delisting

JEL Classification: G12, N23, N24, N43, N44