Risk from the Inside Out: Understanding Firm Risk through Employee News Consumption

86 Pages Posted: 14 Feb 2023 Last revised: 11 Apr 2024

See all articles by Fahiz Baba Yara

Fahiz Baba Yara

Indiana University - Kelley School of Business

Fotis Grigoris

University of Iowa - Department of Finance

Preetesh Kantak

Kelley School of Business

Date Written: April 9, 2024

Abstract

We use employee news consumption to characterize firms’ exposures to macroeconomic risk, making use of data covering two billion employee-article interactions per day across millions of firms. We find that, in the time-series, employees consume more macroeconomic news following the onset of bad times. In the cross-section, firms whose employees were reading more macroeconomic news ex-ante are more exposed to changing economic conditions ex-post. Consistent with the notion that employee news consumption provides insights into firms’ risk exposures, we show that the more exposed firms hedge more, yet have higher costs of capital and subsequently lower investment and hiring rates.

Keywords: Economic Uncertainty, Equity Premium, Risk, Hedging, Investment, Employment

JEL Classification: D22, E23, E44, G32

Suggested Citation

Baba Yara, Fahiz and Grigoris, Fotis and Kantak, Preetesh, Risk from the Inside Out: Understanding Firm Risk through Employee News Consumption (April 9, 2024). Kelley School of Business Research Paper Forthcoming, Available at SSRN: https://ssrn.com/abstract=4354256 or http://dx.doi.org/10.2139/ssrn.4354256

Fahiz Baba Yara

Indiana University - Kelley School of Business ( email )

1309 E. 10th St.
Bloomington, IN 47405
United States

HOME PAGE: http://www.babayara.com

Fotis Grigoris

University of Iowa - Department of Finance ( email )

Iowa City, IA 52242-1000
United States

Preetesh Kantak (Contact Author)

Kelley School of Business ( email )

1309 E. 10th St.
Bloomington, IN 47405
United States

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