The Impact of Fundamental Firm Characteristics on the Tail Risk of Italian and Swedish Stocks

Abstract: These papers investigate whether differences in Tail Risk across Italian and Swedish listed companies can be explained by their fundamental characteristics, and compare the results between the two countries. To this end, data on financial performance, corporate governance, gender diversity and ownership were obtained from over 2,000 Italian and Swedish company filings to build two separate longitudinal panel datasets comprising the 152 largest Italian non-financial firms and the 108 largest Swedish non-financial firms over an almost 20 years period, and a Fixed Effects panel model was used to investigate the issue, using a measure of Expected Shortfall as proxy for Tail Risk. We find that fundamental firm characteristics have a significant relationship with Tail Risk, which changes with firm size. However in Italy, due to its specific corporate ownership characteristic, governance and ownership variables are only correlated with the Tail Risk of small firms, while in Sweden these variables have an impact across the size distribution, which partially differs for small and large firms. Furthermore, gender diversity variables are relevant in determining Tail Risk in Swedish firms, while the opposite is true for Italian firms.