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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.

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

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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.

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

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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.

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

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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.

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

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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.

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

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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.

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

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Abstract

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

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Article
Publication date: 10 June 2020

Pattanaporn Chatjuthamard, Pornsit Jiraporn, Pattarake Sarajoti and Manohar Singh

The study investigates the effect of political risk on shareholder value, using an event study and a novel measure of firm-level political risk recently developed by…

Abstract

Purpose

The study investigates the effect of political risk on shareholder value, using an event study and a novel measure of firm-level political risk recently developed by Hassan et al. (2017). In addition, the authors explore how corporate social responsibility (CSR) influences the effect of political risk on shareholder wealth.

Design/methodology/approach

The authors exploit the guilty plea of Jack Abramoff, a well-known lobbyist, on January 3, 2006, as an exogenous shock that made lobbying less effective and less useful in the future, depriving firms of an important tool to reduce political exposure.

Findings

The results show that the market reactions are significantly more negative for firms with more political exposure. Additional analysis corroborates the results, including propensity score matching, instrumental-variable analysis and Oster's (2019) method for testing coefficient stability. Finally, the authors note that the adverse effect of political risk on shareholder value is substantially mitigated for firms with strong social responsibility, consistent with the risk mitigation hypothesis.

Originality/value

This study is the first to explore the effect of political risk on shareholder value using a novel measure. Furthermore, it is also the first to show that CSR alleviates the cost of political risk to shareholders.

Details

Managerial Finance, vol. 46 no. 10
Type: Research Article
ISSN: 0307-4358

Keywords

Content available
Article
Publication date: 19 June 2020

Qiuyu GaoYan

The purpose of this paper is to contribute to a better understanding on relations between Chinese Outward Foreign Direct Investment (OFDI) and host country political risk

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Abstract

Purpose

The purpose of this paper is to contribute to a better understanding on relations between Chinese Outward Foreign Direct Investment (OFDI) and host country political risk. To contribute to a better understanding of whether traditional wisdom on foreign direct investment (FDI) is sufficient to explain the internationalization of Chinese multinational enterprises, the author collected 15 proxy variables from the PRS Group and Heritage Foundation and applied principal component analysis (PCA) to construct a new political risk index (PRI) that measures multiple facets of political risk for 139 countries.

Design/methodology/approach

Using this new PRI as a criterion, the author investigated changes in the political risk distribution (PRD) of Chinese outward FDI (OFDI) regarding investment destinations, large projects, annual investment outflows and sectorial distributions from 2006–2017.

Findings

The author found that the vast majority of Chinese OFDI during this period is concentrated in moderate- and low-risk countries, even at the sectorial level. This paper also shows that the continuing reform of Chinese OFDI policy and strong government support have led to an unprecedented increase in Chinese OFDI, while the PRD of Chinese OFDI has maintained a gradual decline over the past decade.

Originality/value

This research provides a new measurement that covers multiple facets of political risk.

Details

International Journal of Emerging Markets, vol. 16 no. 6
Type: Research Article
ISSN: 1746-8809

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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

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