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💭   From Transcripts to Insights: Uncovering Corporate Risks Using Generative AI

science

:2310.17721v2 Announce Type: replace-cross Abstract: We explore the value of generative AI tools, such as ChatGPT, in helping investors uncover dimensions of corporate risk. We develop and validate firm-level measures of risk exposure to political, climate, and AI-related risks. Using the GPT 3.5 model to generate risk summaries and assessments from the context provided by earnings call transcripts, we show that GPT-based measures possess significant information content and outperform the existing risk measures in predicting (abnormal) firm-level volatility and firms' choices such as investment and innovation. Importantly, information in risk assessments dominates that in risk summaries, establishing the value of general AI knowledge.

arXiv     Mar 20, 2025