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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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Article
Publication date: 31 March 2020

Min Guo, Naiding Yang and Yanlu Zhang

The purpose of this paper is to explore that relational capability plays a mediator role in the relationship between focal enterprises' control on knowledge transfer risks

Abstract

Purpose

The purpose of this paper is to explore that relational capability plays a mediator role in the relationship between focal enterprises' control on knowledge transfer risks in R&D network.

Design/methodology/approach

The paper reviews the related literature from which it proposes a theoretical hypothesis and conceptual framework which is tested empirically adopting regression methodology by mathematical statistics software.

Findings

The results reveal that focal enterprises' control (core technological capability and network position) have a positive effect on knowledge transfer risks without the mediation of relational capability. Moreover, relational capability mediates the positive relationship between core technological capability and knowledge transfer risks.

Research limitations/implications

The cross-sectional data of this research has difficult in testing causality between the variables, and future research should take account of the potential factors that can impact on knowledge transfer risks.

Practical implications

The results provide more valuable information to managers in alleviating knowledge transfer risks in R&D networks. For one thing, the study indicates how focal firms' control (core technological capability and network position) can be taken advantage of improving R&D efficiency and reducing the knowledge transfer risks. For another, the results emphasize that relational capability plays an important role in interacting with cooperative enterprises in the process of R&D activities.

Originality/value

Few studies present a theoretical discussion on focal firms control as the important determinants of knowledge transfer risks especially in the R&D network. Moreover it expands the related risk management theory by relational capability that mediates the relationship between focal firms control and knowledge transfer risks.

Details

European Journal of Innovation Management, vol. 24 no. 3
Type: Research Article
ISSN: 1460-1060

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Article
Publication date: 1 January 2000

Richard Cantor and Stanislas Rouyer

Although issuers may benefit generally from securitization, some asset securitizations transfer more credit risk than others. When a lender uses securitization to replace…

Abstract

Although issuers may benefit generally from securitization, some asset securitizations transfer more credit risk than others. When a lender uses securitization to replace on‐balance‐sheet financing, that lender transfers to investors some of the risks, and, in the form of credit enhancements, some of the offsetting, i.e., claims‐paying, economic resources (e.g., assets, cashflows), as well. Therefore, securitization only reduces an issuer's net (i.e., residual) exposure to credit losses when a securitization has transferred proportionately more credit risk than claims‐paying assets. The authors discuss the distinction between “gross” versus “net” transfers of credit risk. To illustrate this point, they provide conceptual examples of the net effect of an asset securitization on the residual credit risk retained by an issuer. In these examples, providing credit enhancement (e.g., overcollateralization, subordination) may implicitly lever or delever an issuer's balance sheet. The authors outline the general conditions under which this indirect economic recourse to the issuer, in effect a form of “self‐insurance,” may result in a net dilution of the claims of unsecured creditors.

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The Journal of Risk Finance, vol. 1 no. 2
Type: Research Article
ISSN: 1526-5943

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Article
Publication date: 9 August 2011

Marco A. Espinosa‐Vega and Juan Solé

The purpose of this paper is to show how network analysis can be used for effective cross‐border financial surveillance, which requires the monitoring of direct and…

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1572

Abstract

Purpose

The purpose of this paper is to show how network analysis can be used for effective cross‐border financial surveillance, which requires the monitoring of direct and indirect systemic linkages.

Design/methodology/approach

This paper illustrates how network analysis could make a significant contribution in this regard by simulating different credit and funding shocks to the banking systems of a number of selected countries. After that, the authors show that the inclusion of risk transfers could modify the risk profile of entire financial systems, and thus an enriched simulation algorithm able to account for risk transfers is proposed.

Findings

Finally, the authors discuss how some of the limitations of the simulations are a reflection of existing information and data gaps, and thus view these shortcomings as a call to improve the collection and analysis of data on cross‐border financial exposures.

Originality/value

This paper is one of the very few to take a cross‐border perspective on financial networks. It is also unique in accounting for risk transfers and in proposing a methodology to include the analysis (and monitoring) of risk transfers into a network model.

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Article
Publication date: 13 August 2021

Yang Zhao, Jin-Ping Lee and Min-Teh Yu

Catastrophe (CAT) events associated with natural catastrophes and man-made disasters cause profound impacts on the insurance industry. This research thus reviews the…

Abstract

Purpose

Catastrophe (CAT) events associated with natural catastrophes and man-made disasters cause profound impacts on the insurance industry. This research thus reviews the impact of CAT risk on the insurance industry and how traditional reinsurance and securitized risk-transfer instruments are used for managing CAT risk.

Design/methodology/approach

This research reviews the impact of CAT risk on the insurance industry and how traditional reinsurance and securitized risk-transfer instruments are used for managing CAT risk. Apart from many negative influences, CAT events can increase the net revenue of the insurance industry around CAT events and improve insurance demand over the post-CAT periods. The underwriting cycle of reinsurance causes inefficiencies in transferring CAT risks. Securitized risk-transfer instruments resolve some inefficiencies of the reinsurance market, but are subject to moral hazard, basis risk, credit risk, regulatory uncertainty, etc. The authors introduce some popular securitized solutions and use Merton's structural framework to demonstrate how to value these CAT-linked securities. The hybrid solutions by combining reinsurance with securitized CAT instruments are expected to offer promising applications for CAT risk management.

Findings

The authors introduce some popular securitized solutions and use Merton's structural framework to demonstrate how to value these CAT-linked securities. The hybrid solutions by combining reinsurance with securitized CAT instruments are expected to offer promising applications for CAT risk management.

Originality/value

This research reviews a broad array of impacts of CAT risks on the (re)insurance industry. CAT events challenge (re)insurance capacity and influence insurers' supply decisions and reconstruction costs in the aftermath of catastrophes. While losses from natural catastrophes are the primary threat to property–casualty insurers, the mortality risk posed by influenza pandemics is a leading CAT risk for life insurers. At the same time, natural catastrophes and man-made disasters cause distinct impacts on (re)insures. Man-made disasters can increase the correlation between insurance stocks and the overall market, and natural catastrophes reduce the above correlation. It should be noted that huge CAT losses can also improve (re)insurance demand during the postevent period and thus bring long-term effects to the (re)insurance industry.

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China Finance Review International, vol. 11 no. 4
Type: Research Article
ISSN: 2044-1398

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Article
Publication date: 18 November 2020

Khalid Almarri and Halim Boussabaine

The level at which risk is priced and the magnitude of risks transferred to the private sector will have a significant impact on the cost of the public–private partnership…

Abstract

Purpose

The level at which risk is priced and the magnitude of risks transferred to the private sector will have a significant impact on the cost of the public–private partnership (PPP) deals as well as on the value for money analysis and on the section of the optimum investment options. The price of risk associated with PPP schemes is complex, dynamic and continuous throughout the concession agreement. Risk allocation needs to be re-evaluated to ensure the optimum outcome of the PPP contract.

Design/methodology/approach

This paper provides a coherent theoretical framework for dealing with scenarios of potential gain and loss from retaining or transferring risks.

Findings

The outcome indicates that using the proposed framework will provide innovative ways of deriving risk prices in PPP projects using several risk determinants strategies.

Practical implications

In costing risks, analysts have to take into consideration the balance between the cost of risk transfer and the cost of losses if risk is retained.

Originality/value

This paper contributes to the PPP literature and practice by proposing a framework which is consistent with a risk allocation approach in PPP projects, where the key proposition is that risk pricing can overload project debt leading to loss of value.

Details

Built Environment Project and Asset Management, vol. 11 no. 1
Type: Research Article
ISSN: 2044-124X

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Article
Publication date: 1 August 2003

Pamela Edwards and Jean Shaoul

Partnerships are the British government’s preferred method of procuring public sector services, and the policy is usually justified in terms of delivering value for money…

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6205

Abstract

Partnerships are the British government’s preferred method of procuring public sector services, and the policy is usually justified in terms of delivering value for money. Ex ante financial methodologies are prescribed to ensure that decision making is based on a sound appraisal of alternatives and the government has called for an evaluation of implemented projects. This paper seeks to contribute to that evaluative process by exploring ex post facto some of the issues and problems that arose in practice. Using a case study approach, the paper considers two failures of information technology partnerships to examine how risk transfer, which is at the heart of the partnership policy, works in practice. The cases show that the contracts failed to transfer risk in the way that had been expected. The public agencies, not the commercial partner, bore the management risk and costs fell on the public at large and/or other public agencies.

Details

Accounting, Auditing & Accountability Journal, vol. 16 no. 3
Type: Research Article
ISSN: 0951-3574

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Article
Publication date: 1 December 2000

Chris Mundy

Draws on the results of a survey into alternative risk transfer by Marsh Risk Finance covering major corporations over three years. Covers the needs of the buyers rather…

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17996

Abstract

Draws on the results of a survey into alternative risk transfer by Marsh Risk Finance covering major corporations over three years. Covers the needs of the buyers rather than the suppliers. Shows how alternative risk transfer can be of value to the insurance world in particular. Highlights a need for this technique to reach a wider audience as buyer perceptions change.

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Balance Sheet, vol. 8 no. 6
Type: Research Article
ISSN: 0965-7967

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Article
Publication date: 19 October 2012

Istemi Demirag, Iqbal Khadaroo, Pamela Stapleton and Caral Stevenson

The UK government argues that the benefits of public private partnership (PPP) in delivering public infrastructure stem from transferring risks to the private sector…

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3538

Abstract

Purpose

The UK government argues that the benefits of public private partnership (PPP) in delivering public infrastructure stem from transferring risks to the private sector within a structure in which financiers put their own capital at risk, and the performance‐based payment mechanism, reinforced by the due diligence requirements imposed by the lenders financing the projects. Prior studies of risk in PPPs have investigated “what” risks are allocated and to “whom”, that is to the public or the private sector. The purpose of this study is to examine “how” and “why” PPP risks are diffused by their financiers.

Design/methodology/approach

This study focuses on the financial structure of PPPs and on their financiers. Empirical evidence comes from interviews conducted with equity and debt financiers.

Findings

The findings show that the financial structure of the deals generates risk aversion in both debt and equity financiers and that the need to attract affordable finance leads to risk diffusion through a network of companies using various means that include contractual mitigation through insurance, performance support guarantees, interest rate swaps and inflation hedges. Because of the complexity this process generates, both procurers and suppliers need expensive expert advice. The risk aversion and diffusion and the consequent need for advice add cost to the projects, impacting on the government's economic argument for risk transfer.

Originality/value

The expectation inherent in PPP is that the private sector will better manage those risks allocated to it and because private capital is at risk, financiers will perform due diligence with the ultimate outcome that only viable projects will proceed. This paper presents empirical evidence that raises questions about these expectations.

Details

Accounting, Auditing & Accountability Journal, vol. 25 no. 8
Type: Research Article
ISSN: 0951-3574

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Article
Publication date: 1 June 2003

Morrison Handley‐Schachler and Simon S. Gao

The Private Finance Initiative (PFI) introduced in the UK in 1992 has provided the framework for the completion of a large number of capital projects managed by public…

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1996

Abstract

The Private Finance Initiative (PFI) introduced in the UK in 1992 has provided the framework for the completion of a large number of capital projects managed by public sector bodies. The objectives of the PFI included the promotion of greater efficiency and cost control in the management of large‐scale projects, the transfer of risks to the sector or organisation best able to manage them and the use of management skills available in different sectors of the economy to improve the effectiveness of publicly funded projects. Success and failure cases of the PFI discussed in this paper give some implications to policy‐makers in emerging economies in various areas including risk management, cost of capital measurement and transfer of risks. Overall, there is a need for a greater focus on long term budgets in making decisions about PFI and other methods of public service provision. The question of long term planning is likely to be more complicated in emerging economies with rapid growth rates. For many emerging economies, PFI is a new premise with fundamental differences from conventional public finance, not only in principles, but also in the contract process, risk consideration and decision making.

Details

Managerial Finance, vol. 29 no. 5/6
Type: Research Article
ISSN: 0307-4358

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