Homogeneity of corporate risk perceptions and systemic financial risk

The stability of the financial system is a worldwide concern that is crucial for economic well-being. Corporate risk perceptions reflecting firms’ assessments of potential threats are integral to understanding financial interconnectedness and systemic risk, yet this potential has not been uncovered. This study employs text mining of risk factor disclosures to extract the risks perceived by financial institutions and measure the homogeneity of their perceptions. Our findings indicate that post-crisis, risk perceptions among firms become more homogeneous, driven by heightened awareness of shared risks. Differences exist in intra-sector risk perception homogeneity across sectors, whereas a consistent rise in inter-sector homogeneity is observed. Greater perception homogeneity among financial institutions, as indicated by their network positions, is positively associated with higher systemic risk, irrespective of whether the risks are general or specific. However, the risk perception homogeneity can help mitigate systemic risk once a financial crisis occurs.