Search results

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.

This study aims to investigate the impact of exchange rate volatility and the risk of expropriation on the decision to repatriate foreign earnings.

The current study uses secondary data for foreign subsidiaries of US multinational corporations (MNCs) in 40 countries from 2004 to 2016. We use the dynamic panel difference generalised method of moments (GMM) to estimate the dynamic earnings repatriation model.

The findings show that foreign subsidiaries of US MNCs in countries with volatile exchange rates tend to repatriate more earnings to the parent company. The findings also reveal that a greater risk of expropriation in the host country leads to the higher repatriation of foreign earnings to the parent company. The findings support the notion that MNCs use the earnings repatriation policy as a means of mitigating risks arising in the host country.

Practical implications for modern managers include shedding light on how financial managers can use earnings repatriation policy to mitigate exchange rate risk and the risk of expropriation in the host country. The findings also contain policy implications at the host country level that how exchange rate volatility and risk of expropriation can reduce foreign investment in the host country.

This study adds to the earnings repatriation literature by analysing the direct effect of exchange rate volatility on earnings repatriation decisions, as opposed to the impact of the exchange rate itself, as suggested by previous research. Hence, the findings broaden our understanding of the direct influence of exchange rate volatility on the decision to repatriate foreign earnings. The present study also examines the role of the risk of expropriation in determining earnings repatriation policy, which has received little attention in prior empirical studies.

This paper explores firms’ strategic options when their investments are subject to the threat of government expropriation. I develop a simple hold-up model of political risk. In the model, a firm decides whether to invest and then the government decides whether to expropriate the firm’s investment or to simply collect normal taxes on its profits. The government is motivated by revenue and a wide range of nonpecuniary factors: its reputation, electoral pressures, patronage opportunities, and pressure from external actors. In the model, the likelihood of expropriation depends on several factors: the firm’s profits, the amount of taxes it pays, the government’s ability to operate the firm’s assets, and the government’s political incentives. Effective management of political risk requires an integrated strategy, consisting not only of public and government relations efforts, but also financial, value chain, and human resources strategies designed to reduce the government’s incentives for expropriation.

The purpose of this paper is to decompose the effects of democracy and risk of expropriation on economic volatility.

The authors follow Acemouglu et al. and use settler mortality in former colonies in the seventeenth, eighteenth and nineteenth centuries as an instrument of “risk of expropriation,” in addition to a democracy index to capture institutional effects on economic stability.

The authors present empirical evidence that the economic performance of more centralized former European colonies is not more volatile than that of democratic ones, once the exogenous variation of expropriation risk across countries is included in the model

The paper investigates the role of a spectrum of different institutions on economic stability. In this sense, the paper contributes to the literature analyzing the effect of property‐rights protection, as measured by a risk‐of‐expropriation index, on the relation between democracy and economic stability.

The study, by focusing on a context dominated by firms with a concentrated ownership, in which type-II agency problems (principal-principal conflicts) may occur, aims to depict which board configurations may be effective in protecting minority shareholders by mitigating the risk of controlling shareholders' expropriation via cash holdings.

The research adopts a configurational approach and empirically conducts a fuzzy set/qualitative comparative analysis on a sample of 268 Italian listed companies.

The analysis depicts three combinations of board configurations and ownership structures that can be considered effective, namely Active Independent Control, Female Active Control and Double Internal Control.

The study revisits the topic of the risk of expropriation via cash holdings in a type-II agency problem framework and delineates the meaning of board effectiveness in a mature context ruled by family firms, like Italy. Furthermore, by drawing on a configurational approach, it overcomes the causality relationship between each board characteristic and cash holdings policies and reasons from a “bundle” perspective.

The purpose of this study is to examine the agency problem of expropriation using dividends in politically connected firms and the relevance of institutional investors in limiting this problem. The growing presence of this group of shareholders offers a unique opportunity to test their importance in the context of dividends payments and expropriation.

This study uses the Tobit regression to test the association between political connection, institutional investors and dividend payouts. The results are also robust to the three-stage-least squares regressions method.

The study is based on a random sample of 2,458 Malaysian firms-year observations for the period of 2004-2009. The results reveal that politically connected firms have an inclination to pay lower dividends, while institutional ownership is associated with higher dividend payouts. Furthermore, the findings reveal that higher levels of institutional ownership moderates the negative relationship between politically connected firms and dividends.

The findings have an important implication to regulators as it suggests that the institutional investors can influence the dividend payouts in politically connected firms through active monitoring, thus alleviating agency problems. This also provides a positive feedback on the regulators’ governance initiatives that quest to strengthen the roles of institutional investors.

This study is the first to examine the effectiveness of the monitoring role of institutional investors in the context of expropriation by politically connected firms from the perspective of dividend payouts.

The aim of this paper is to revisit the board independence–audit fees (BI–AF) relationship while taking into account the ownership structure of the firm. Two effects are unfolding along the ownership concentration spectrum: separation of ownership and control (principal–agent problems) and separation of voting and cash flow rights (principal–principal problems).

The study is conducted over a seven-year period (2002-2008) using panel regressions on a sample of Canadian publicly traded companies. The authors use a moderated regression analysis incorporating two-way interactive terms (ownership × BI) and a sub-group analysis.

The results show a positive and significant relationship between BI and AF when ownership is concentrated in the hands of a dominant/controlling shareholder. The higher the gap between voting and cash flow rights of the ultimate owner, the stronger the relationship between BI and AF. Overall, evidence supports both the demand-based perspective on AF and the expropriation effect argument.

Results support a one-size-fits-all approach to governance despite growing concerns from academics and interest groups about the appropriateness of pursuing such strategy when ownership is concentrated in the hands of a dominant/controlling shareholder.

By taking the excess voting rights into account (difference between voting rights and cash-flow rights of the ultimate owner), the authors propose a refined classification of the sample firms along the ownership concentration spectrum.

Asset specificity is a focal feature of buyer–supplier exchanges; however, whether unilateral asset specificity encourages opportunistic value expropriation or promotes trust-based value creation remains controversial. The purpose of this paper is to investigate how institutional forces shape the controversial roles of buyer asset specificity in supply chain relationships.

With a survey of 217 matched manufacturer–supplier dyads in China, the study adopts ordinary least squares regression analyses to test hypotheses.

The results show that two key institutional forces, guanxi importance and government intervention, play different roles in shaping the value expropriation and value creation roles of buyer asset specificity. As an informal institutional force, guanxi importance weakens the impact of buyer asset specificity on opportunistic value expropriation and facilitates trust-based value creation. Moreover, as a formal institutional force, government intervention amplifies the effect of buyer asset specificity on opportunism but strengthens its connection with trust.

By incorporating an institutional view to investigate how institutional forces affect this “valuable but vulnerable” dilemma of asset specificity, this study reconciles the controversy concerning value expropriation vs value creation and enriches understanding of the critical roles of institutional parameters in supply chain management.

The aims of this paper are: to explore the nature of political risk insurance (PRI) contracts as a form of regulation in the context of mining projects in developing countries; to examine how PRI providers factor corporate social responsibility (CSR) policies and practices of applicants in their initial decisions to provide PRI; to examine how CSR criteria are reflected in the terms of PRI contracts; to understand how failure to exercise good CSR practices by recipients of PRI affects insurance coverage; to shed light on how good CSR practices which minimize risk to companies and communities can be or are rewarded through PRI contracts; to identify opportunities for reform.

This article adopts a conceptual approach through analysis of the practical effects and public policy implications associated with use of PRI contracts as a regulatory mechanism to promote good CSR practices.

PRI contracts represent a form of proactive risk management used by investors. Because of the significant regulatory effect of the CSR provisions of PRI contracts provided by state‐based agencies, there is considerable potential for and value associated with greater transparency in the implementation of such contracts.

This article sheds light on the regulatory dimensions associated with the CSR provisions of PRI contracts. This represents a new contribution to the literature on CSR contracts, which until this point has focused largely on the CSR aspects of supply chain contracts.