Legislative Risk

The risk that lawmakers (by changing the laws or rules) can adversely affect a company’s business. This may occur when legislation directly affects the company or destroys demand for its products.

An example of an industry with high legislative risk is the defense industry. If politicians show a leaning to cutting defense expenditures, the industry may suffer as a result. Another example of an industry with high legislative risk is the biofuels industry, which grew under an umbrella of protection from Congress.

The industry with the highest legislative risk may be healthcare, as FDA approval or disapproval of a drug can make or destroy a small biotech company overnight.

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