The Empirical Determinants of the Adoption of a Political Risk Assessment Function in International Firms

Abstract

This paper seeks to conceptualise a new approach to the identification of the factors influencing the adoption of a political risk assessment (PRA) function. The research population will comprise a convenience sample of Czech and Slovak international firms. The information whether or not a firm has set up a PRA function will be obtained via a questionnaire survey. 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 to be employed in PRA studies; and we propose a model for predicting the PRA adoption decision