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Article
Publication date: 1 January 1994

M. Anaam Hashmi

In this study a relationship between the fluctuation of a nation's monetary reserves and political risk is established. A least square regression model is used for the…

Abstract

In this study a relationship between the fluctuation of a nation's monetary reserves and political risk is established. A least square regression model is used for the 1972–87 period and monetary reserves fluctuations of nineteen countries are analyzed. It is concluded that monetary reserves data can be used as a cost efficient proxy for political risk in moderate risk non‐oil exporting countries. Less politically risky countries also exhibit a positive relationship but the results are not statistically significant. This study has special implications for small and medium‐sized corporations. Further, the limitations of this study are discussed.

Details

International Journal of Commerce and Management, vol. 4 no. 1/2
Type: Research Article
ISSN: 1056-9219

Article
Publication date: 1 March 1978

Hans Schöllhammer

Multinational firms account at present (1976) for almost 15% of the aggregate gross national products of the western world; their total foreign investments are in excess…

Abstract

Multinational firms account at present (1976) for almost 15% of the aggregate gross national products of the western world; their total foreign investments are in excess of 320 billion dollars and the aggregate market value of the foreign assets under their control is very likely about four to five times as large. The value of these assets is affected by various risks, i.e. the probability of a loss, that can be broadly classified as economic and political risks. This separation is certainly open to question since there can exist a close interdependency between the factors that constitute economic and political risks. A distinction is, nevertheless, appropriate since political risks stem from changes in (assumed) policy positions whereas economic risks are associated with changes concerning market, competitive, and technological factors that diminish the firm's effectiveness and profit potential. In addition, the factors responsible for political risks becoming an actuality are more easily identified than those forces which are responsible for the economic risks becoming an actuality.

Details

Management Research News, vol. 1 no. 3
Type: Research Article
ISSN: 0140-9174

Book part
Publication date: 29 December 2016

John R. Anchor and Hana Benesova

This chapter seeks to conceptualize a new approach to the identification of the factors influencing the adoption of a political risk assessment (PRA) function. By making…

Abstract

This chapter seeks to conceptualize a new approach to the identification of the factors influencing the adoption of a political risk assessment (PRA) function. By making use of firm value maximization and risk aversion and considering the rationale for risk management activities, a number of determinants are identified which can be deployed in future PRA studies. A model for predicting the PRA adoption decision is proposed. Geographical contextualization in one or more emerging markets (EMs) provides a further dimension of originality as well as reflecting an increasingly important international business phenomenon. Political risk (PR) and political risk assessment (PRA) are of increasing importance in the context of the growth and development of emerging markets (EMs). The latter provide opportunities for inward investment from more developed economies. There has also been a rapid growth in outward foreign direct investment (OFDI) from emerging markets to other economies. This chapter adds to the current understanding of PRA by examining this issue in emerging markets (EMs) through the model developed here.

Details

Risk Management in Emerging Markets
Type: Book
ISBN: 978-1-78635-451-8

Keywords

Book part
Publication date: 3 May 2016

Benjamin A. T. Graham, Noel P. Johnston and Allison F. Kingsley

Political risk is a complex phenomenon. This complexity has incentivized scholars to take a piecemeal approach to understanding it. Nearly all scholarship has targeted a…

Abstract

Political risk is a complex phenomenon. This complexity has incentivized scholars to take a piecemeal approach to understanding it. Nearly all scholarship has targeted a single type of political risk (expropriation) and, within this risk, a single type of firm (MNCs) and a single type of strategic mechanism through which that risk may be mitigated (entry mode). Yet “political risk” is actually a collection of multiple distinct risks that affect the full spectrum of foreign firms, and these firms vary widely in their capabilities for resisting and evading these risks. We offer a unified theoretical model that can simultaneously analyze: the three main types of political risk (war, expropriation, and transfer restrictions); the universe of private foreign investors (direct investors, portfolio equity investors, portfolio debt investors, and commercial banks); heterogeneity in government constraints; and the three most relevant strategic capabilities (information, exit, and resistance). We leverage the variance among foreign investors to identify effective firm strategies to manage political risk. By employing a simultaneous and unified model of political risk, we also find counterintuitive insights on the way governments trade off between risks and how investors use other investors as risk shields.

Details

Strategy Beyond Markets
Type: Book
ISBN: 978-1-78635-019-0

Keywords

Book part
Publication date: 7 October 2015

Md Nuruzzaman

The objective of this study is to investigate how country risk, different political actions from the government and bureaucratic behavior influence the activities in…

Abstract

The objective of this study is to investigate how country risk, different political actions from the government and bureaucratic behavior influence the activities in industry supply chains (SCs) in emerging markets. The main objective of this study is to investigate the influence of these external stakeholders’ elements to the demand-side and supply-side drivers and barriers for improving competitiveness of Ready-Made Garment (RMG) industry in the way of analyzing supply chain. Considering the phenomenon of recent change in the RMG business environment and the competitiveness issues this study uses the principles of stakeholder and resource dependence theory and aims to find out some factors which influence to make an efficient supply chain for improving competitiveness. The RMG industry of Bangladesh is the case application of this study. Following a positivist paradigm, this study adopts a two phase sequential mixed-method research design consisting of qualitative and quantitative approaches. A tentative research model is developed first based on extensive literature review. Qualitative field study is then carried out to fine tune the initial research model. Findings from the qualitative method are also used to develop measures and instruments for the next phase of quantitative method. A survey is carried out with sample of top and middle level executives of different garment companies of Dhaka city in Bangladesh and the collected quantitative data are analyzed by partial least square-based structural equation modeling. The findings support eight hypotheses. From the analysis the external stakeholders’ elements like bureaucratic behavior and country risk have significant influence to the barriers. From the internal stakeholders’ point of view the manufacturers’ and buyers’ drivers have significant influence on the competitiveness. Therefore, stakeholders need to take proper action to reduce the barriers and increase the drivers, as the drivers have positive influence to improve competitiveness.

This study has both theoretical and practical contributions. This study represents an important contribution to the theory by integrating two theoretical perceptions to identify factors of the RMG industry’s SC that affect the competitiveness of the RMG industry. This research study contributes to the understanding of both external and internal stakeholders of national and international perspectives in the RMG (textile and clothing) business. It combines the insights of stakeholder and resource dependence theories along with the concept of the SC in improving effectiveness. In a practical sense, this study certainly contributes to the Bangladeshi RMG industry. In accordance with the desire of the RMG manufacturers, the research has shown that some influential constructs of the RMG industry’s SC affect the competitiveness of the RMG industry. The outcome of the study is useful for various stakeholders of the Bangladeshi RMG industry sector ranging from the government to various private organizations. The applications of this study are extendable through further adaptation in other industries and various geographic contexts.

Details

Sustaining Competitive Advantage Via Business Intelligence, Knowledge Management, and System Dynamics
Type: Book
ISBN: 978-1-78441-764-2

Keywords

Abstract

Details

Modelling the Riskiness in Country Risk Ratings
Type: Book
ISBN: 978-0-44451-837-8

Article
Publication date: 16 February 2022

Cathy Xuying Cao and Chongyang Chen

This paper examines the relation between political sentiment and future stock price crash risk.

Abstract

Purpose

This paper examines the relation between political sentiment and future stock price crash risk.

Design/methodology/approach

This study employs firm-level political sentiment from earnings conference calls. The empirical analysis applies panel regressions on 40,254 US firm-year observations between 2002 and 2020, controlling for various firm-specific determinants of crash risk and firm-, industry- as well as time-fixed effects.

Findings

The study identifies a negative association between both the level and the change of political sentiment and stock crash risk. Further analysis shows that the predictive power of political sentiment is independent of either non-political sentiment or political risk and remains consistently strong during periods of either high or low economic policy uncertainty. Moreover, the predictive effect of political sentiment is more pronounced for firms with high litigation risk.

Research limitations/implications

The evidence highlights the important role of political sentiment in predicting stock crash risk. The results are consistent with the signaling hypothesis that managers tend to use their tone in conference calls to convey informative messages on firm outlooks.

Practical implications

The study provides a recommendation on risk management: soft information such as political and non-political sentiment in earnings conference calls is useful in managing stock crash risk. The study findings also call for careful consideration of social costs, such as stock crash risk, associated with political policies. Ill-conceived policies may lead to market crashes, which can potentially outweigh the upsides of well-meaning political reforms.

Originality/value

To the authors best knowledge, this is the first study to identify the effect of time-varying firm-level political sentiment conveyed in conference calls on stock price crash.

Details

The Journal of Risk Finance, vol. 23 no. 2
Type: Research Article
ISSN: 1526-5943

Keywords

Article
Publication date: 28 December 2021

Fawad Ahmad, Michael Bradbury and Ahsan Habib

This paper aims to examine the association between political connections, political uncertainty and audit fees. The authors use various measures of political connections…

Abstract

Purpose

This paper aims to examine the association between political connections, political uncertainty and audit fees. The authors use various measures of political connections and uncertainty: political connections (civil and military), political events (elections) and a general measure of political stability (i.e. a world bank index).

Design/methodology/approach

The authors measure the association between political connections, political uncertainty and audit fees. Audit fees reflect auditors’ perceptions of risk. The authors examine auditors’ business risk, clients’ audit and business risk after controlling for the variables used in prior audit fee research.

Findings

Results indicate that civil-connected firms pay significantly higher audit fees than non-connected firms owing to the instability of civil-political connections. Military-connected firms pay significantly lower audit fees than non-connected firms owing to the stable form of government. Furthermore, considering high leverage as a measure of clients’ high audit risk and high return-on-assets (ROA) as a measure of clients’ lower business risk, the authors interact leverage and ROA with civil and military connections. The results reveal that these risks moderate the relationship between political connection and audit fees. Election risk is independent of risk associated with political connections. General political stability reinforces the theme that a stable government results in lower risks.

Originality/value

The authors combine cross-sectional measures of political uncertainty (civil or military connections) with time-dependent measures (general measures of political instability and elections).

Details

Managerial Auditing Journal, vol. 37 no. 2
Type: Research Article
ISSN: 0268-6902

Keywords

Article
Publication date: 30 April 2021

Thang Xuan Nguyen, Khanh Hoang, Cuong Cao Nguyen and Thang Ngoc Bach

This paper investigates how different types of corporate political connection, including government-linked investment (GLI), former officials as politically-connected…

Abstract

Purpose

This paper investigates how different types of corporate political connection, including government-linked investment (GLI), former officials as politically-connected directors (PCD), cronyism (CRO) and government leaders' family ties (FAM), influence financial distress risk in Malaysian firms.

Design/methodology/approach

We separate political connections into four distinct categories and investigate their relationship with firm distress risk and compare the results with the one-size-fits-all treatment which is popular in the literature. We apply a battery of sensitivity test to ensure that our inferences are robust to a wide range of test specifications, endogeneity concern and sample selection methods.

Findings

The empirical results show that the effect of political connections on distress risk is strongly heterogeneous. GLI and PCD firms tend to have higher distress risk via increased risk-taking behaviors because of the different incentives of the connections, while this nexus does not directly exhibit in CRO and FAM firms. Further analyses reveal that CRO and FAM firms are more likely to venture into risky international diversification, thus indirectly amplifying their distress risk.

Originality/value

Our findings are novel and provide practical implications for financial analysts, investors and portfolio managers operating in the capital markets.

Details

International Journal of Emerging Markets, vol. ahead-of-print no. ahead-of-print
Type: Research Article
ISSN: 1746-8809

Keywords

Article
Publication date: 16 December 2019

Weiling Jiang, Igor Martek, M. Reza Hosseini and Chuan Chen

Foreign direct investment in the infrastructure (FDII) of developing countries has a history of at least four decades. Bullish demand for foreign infrastructure services…

Abstract

Purpose

Foreign direct investment in the infrastructure (FDII) of developing countries has a history of at least four decades. Bullish demand for foreign infrastructure services in developing countries, in combination with unstable political environments, has buoyed attention in political risk management (PRM). Even so, research into PRM of FDII remains fragmented and unmapped. Thus, the purpose of this paper is to identify the current body of knowledge in this area, uncover deficiencies and lay the foundation for further practical PRM research in FDII.

Design/methodology/approach

This paper offers a bibliometric-qualitative review of current literature on political risk in foreign infrastructure in developing countries. A 36-year period is identified, from 1983 to 2018. Publication year, area of focus, author(s), institution and country are classified and analyzed through the medium of social network analysis. The tools used are VOSviewer, CiteSpace and Gephi to analyze citation networks of 345 published papers. Out of 345 papers, 94 highly related studies were selected for further content analysis.

Findings

The study identified the research trends in related areas of PRM in infrastructure (e.g. PRM in international construction and foreign direct investment) by bibliometric analysis, which includes scattered researcher collaboration, wide-ranging and unfocused journal selection, unsystematic and discontinuous research themes. The specific research weakness in PRM in FDII is recognized by qualitative analysis from the perspective of PRM process, which reveals a lack of understanding of the impact of political risk factors, subjective risk estimations, lacking application of mature political risk database in FDII, combined with a shortage of complete and effective strategies for PRM in FDII in developing countries.

Originality/value

This paper is the first of its kind, providing a comprehensive benchmark survey of the research to date in PRM in foreign infrastructure investment in developing countries. It proposes a framework of future research agenda on PRM in FDII, including special issues on this topic, identification and assessment of political risk factors with objective methods, proposition of PRM strategies on FDII with proactive and active approaches, completing strategies of PRM with reactive strategies from the perspectives of whole life cycle of infrastructure projects, political risk factors and stakeholders. It also addressed the need to investigate the suitable literature databases for researching in this area.

Details

Engineering, Construction and Architectural Management, vol. 28 no. 1
Type: Research Article
ISSN: 0969-9988

Keywords

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