Predicting Adverse Media Risk using a Heterogeneous Information Network

Abstract

The media plays a central role in monitoring powerful institutions and identifying any activities harmful to the public interest. In the investing sphere constituted of 46,583 officially listed domestic firms on the stock exchanges worldwide, there is a growing interest “to do the right thing”, i.e., to put pressure on companies to improve their environmental, social and government (ESG) practices. However, how to overcome the sparsity of ESG data from non-reporting firms, and how to identify the relevant information in the annual reports of this large universe? Here, we construct a vast heterogeneous information network that covers the necessary information surrounding each firm, which is assembled using seven professionally curated datasets and two open datasets, resulting in about 50 million nodes and 400 million edges in total. Exploiting this heterogeneous information network, we propose a model that can learn from past adverse media coverage patterns and predict the occurrence of future adverse media coverage events on the whole universe of firms. Our approach is tested using the adverse media coverage data of more than 35,000 firms worldwide from January 2012 to May 2018. Comparing with state-of-the-art methods with and without the network, we show that the predictive accuracy is substantially improved when using the heterogeneous information network. This work suggests new ways to consolidate the diffuse information contained in big data in order to monitor dominant institutions on a global scale for more socially responsible investment, better risk management, and the surveillance of powerful institutions.