Operations Research, Systems Engineering and Industrial Engineering Commons^™

Understanding The Impact Of Trade Policy Effect Uncertainty On Firm-Level Innovation Investment: A Deep Learning Approach, Daniel Chang, Nan Hu, Peng Liang, Morgan Swink

Research Collection School Of Computing and Information Systems

Integrating the real options perspective and resource dependence theory, this study examines how firms adjust their innovation investments to trade policy effect uncertainty (TPEU), a less studied type of firm specific, perceived environmental uncertainty in which managers have difficulty predicting how potential policy changes will affect business operations. To develop a text-based, context-dependent, time-varying measure of firm-level perceived TPEU, we apply Bidirectional Encoder Representations from Transformers (BERT), a state-of-the-art deep learning approach. We apply BERT to analyze the texts of mandatory Management Discussion and Analysis (MD&A) sections of annual reports for a sample of 22,669 firm-year observations from 3,181 unique …