Title: Firm Exposure to Artificial Intelligence Risk: A Text-Based Measure

Speaker: Zhiyan Wu (Erasmus University Rotterdam)

Time: 10:00 (Tuesday), December 17th, 2024

Venue: Room 1008, Mingde Business Building

Language: Chinese/English

ABSTRACT:

We develop a measure of firm exposure to artificial intelligence (AI) risk using textual analysis of quarterly earnings conference-call transcripts. We validate the measure through several tests, demonstrating that: (1) it captures intuitive variations over time and across firms; (2) it accurately reflects risk exposure, as evidenced by its significant correlation with both realized and options-implied stock return volatility, even after controlling for well-established aggregate risk measures; (3) firms facing higher AI risks have greater cash holdings, file more AI-related patents, and develop more AI-specific investments; (4) during unexpected AI events, such as the AI Beats Humans event in the Reading Comprehension SQuAD, firms with higher ex-ante risk exposure not only suffer adverse outcomes like increased volatility and decreased sales but also intensify their engagement in AI-focused patent applications and investments in response to these events. These results suggest that our text-based measure provides a credible quantification of firm exposure to AI risk and can thus be reliably used by scholars and policymakers to understand the multifaceted impacts of AI on firms and markets.