The determinants of the adoption of a political risk assessment function in czech international firms: a theoretical framework
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Date
2013
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Technická Univerzita v Liberci
Technical university of Liberec, Czech Republic
Technical university of Liberec, Czech Republic
Abstract
This theoretical paper seeks to conceptualise a new approach to the identification of the factors influencing the adoption of a political risk assessment (PRA) function. First of all, we identify political risk (PR) as any host government action and/or inaction or an action against a host government that could threaten business activities of firms; and PRA as the process of analysing and evaluating such risks. The research population will comprise a convenience sample of Czech international firms. The information whether or not a firm has set up a PRA function will be obtained via a questionnaire survey. Previous studies aimed at PRA were concerned with firm's size, degree of internationalization, ownership and industry. By making use of firm value maximization and risk aversion and considering the rationale for risk management activities: (i) reducing the expected costs of financial distress; (ii) reducing the risk premiums payable to various partners; (iii) increasing investment possibilities; and (iv) reducing expected tax payments, we develop a number of determinants which can be employed in PRA studies; namely firmscomplexity, location of subsidiaries, leverage, auditor type and investment opportunities. In addition to the above mentioned theories this concept makes use of the enterprise risk management (ERM) theory, and the determinants of the adoption of an ERM function.
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Czech Republic, international firms, political risk, political risk assessment
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978-80-7372-953-0