Firm-Level Political Sentiment and Financial Outcomes: Evidence from the Nordic Region

Abstract

This thesis investigates whether political sentiment by managers during quarterly earnings calls predicted firm-level financial performance in the Nordics. Capitalizing on Hassan et al.'s (2019) political tone index, this study combines sentiment information with Capital IQ firm financials in Denmark, Finland, Norway, and Sweden for 2006-2023. The analysis of six focal firm outcomes is based on profitability (ROA, ROE), stock return, leverage, capital expenditure, and cash holdings. Using fixed-effects panel regressions, the evidence suggests that management tone political optimism is positively associated with subsequent profitability but negatively associated with stock returns, which would suggest a disconnection between management tone and investor response. Other effects—e.g., reduced leverage and increased expenditure on capital—are in line with improved managerial expectations when politics are favourable. However, the size and sign of these associations vary across countries, with weaker patterns being the case in Norway owing to its unusual economic structure. These findings contribute to the new literature on political sentiment and company behaviour in demonstrating political tone to be a powerful input into company decisionmaking— even in established, high-trust democracies. The work demonstrates the role of text-based forward-looking indicators in explaining financial performance variability at the company level.