Trade friction risk disclosure and firm value

This study examines how the disclosure of trade friction risk (TFRD) affects firm valuation amid rising global protectionism. Utilizing a panel of Chinese A‐share listed firms from 2015 to 2024, we develop a novel textual analysis methodology that constructs context‐specific sentiment dictionaries and measures disclosure at the sentence level, enabling precise quantification of management's net pessimistic tone in communicating trade‐friction risks. Our findings reveal that markets interpret pessimistic TFRD as a negative value signal: a one‐standard‐deviation increase in TFRD_Risk* is associated with a 3.0% decline in Tobin's Q ( p < 0.01)—a result robust to rigorous endogeneity tests. Mechanism analysis demonstrates that this valuation penalty operates through collective loss aversion and excessive pessimism.