A model for identifying political risk

Abstract

Pity the corporate planner of a major multi‐national who, at the peak of his frustration, exclaims: “I wish our company could get expropriated in Brazil!” Many years ago, when the company first decided to invest in Brazil, the decision makers realized that the company might face certain political risks. But the company took a simplistic view of political risk, as it was often equated with expropriation, against which the company could be insured. Political risk was not thought of again until price controls allowed only a low‐level of return on investment. The corporate planners and operating managers had done nothing to plan for price controls. The probability of expropriation remains low, but the book value of the company's Brazilian assets now is so reduced that the corporation could not hope for much relief from insurance even if expropriation did occur.

Citation

Pearson, C.E. (1982), "A model for identifying political risk", Planning Review, Vol. 10 No. 1, pp. 24-39. https://doi.org/10.1108/eb053975