Knowledge@Wharton: Using a Company’s Own Words to Assess Its Risks

Knowledge@Wharton: Using a Company’s Own Words to Assess Its Risks. “When analysts or academics want to assess the risks that a company faces, they usually look at macroeconomic factors or internal firm metrics such as a declining sales trend to calculate those risks. But research from Wharton doctoral candidate Alejandro Lopez Lira takes a different approach. He asked this question: What if, instead of letting the outside world tell us what risks a company faces, we let the company tell us itself? After all, a company knows its business best. Lopez Lira used machine learning to read through the annual reports of all U.S. public companies to find out which risks they identified as the most serious ones they face. And the results can be surprising.”