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The Determinants of the Adoption of a PRA Function in Czech International Firms:a Theoretical Framework
John Anchor and Hana Benešová, University of Huddersfield
Liberecké ekonomické fórum 2013, 16th September
Presentation Outline
• Introduction• Research context and motivation
• Political Risk Assessment (PRA)
• Theoretical concept
• Empirical evidence
• PRA in Czech international firms
• Further Research Proposal
• Determinants of PRA adoption
Research Context and Motivation
Motivation Political risk brings major uncertainty
for international firms (Kobrin, 1981; Lucas, 1990; Haksoon, 2010)
Political risk is assessable and its assessment can decrease potential material losses (e.g. Rice and Mahmoud, 1990; Stapenhurst, 1992; Burmester, 2000; Hood and Nawaz, 2004)
Very little evidence about PRA function in CEE firms
International context of CEE countries increases potential political risks (Djankov and Murrell, 2002; Makhija, 2004)
Risk Management
International
Business
Political Environme
nt
General Aim and Objectives
General Aim
Research Objectives
An analysis of political risk behaviour of Czech firms with special reference to the assessment and management of political risk in international business and institutionalisation of PRA function
Analysis of political risks identified by managers of Czech international firms
Comparison of managerial concerns in Czech firms with different geographical contexts
Analyse the exposure to and mediation of political risk in Czech firms
Analysis of PRA function in Czech firms by home-host country relationship and firm-specific factors
Theoretical Concept and Previous Studies
PRA is a process of analysing and evaluating political risk while undertaking international business activities
Geographical Context
Empirical Evidence
Political Risk Assessment
Focus on firms based in developed countries
Low standard of PRA identified across literature
Need for PRA as a routine function
Performed either in-house or externally
Made more systematic by institutionalisation i.e. formally assigned responsibility
Informal
Unsystematic
ReactiveInadequate
Subjective
Determinants of PRA Adoption
Hashmi and Baker (1988), Hashmi and Guvenli (1992), Al Khattab et
al. (2008).Hashmi and Baker (1988), Stapenhurst (1992), Kettis
(2004), Al Khattab et al. (2008).
Stapenhurst (1992), Wyper (1995), Pahud De Mortanges and Allers (1996), Jenney (2001), Kettis (2004), Al Khattab et al.
(2008).
Al Khattab et al. (2008).
Internationalisation
Size
Industry
Ownership
New Determinants of PRA Adoption
Methodology
Determinants of PRA Adoption in Czech Firms
Questionnaire survey
Secondary data via Albertina database
In firms where PRA function has been adopted
Internationalisation, size, industry, ownership – widely used in PRA
studies
New variables based on PRA being part of company risk management
Enterprise Risk Management literature reviewed to identify factors
influencing ERM adoption decision
Theoretical Justification of New Determinants
Theoretical Background PR already included in risk management, and even more likely to
be implemented in enterprise risk management (ERM).
ERM suggest that the following theories can be used to determine factors of ERM adoption (Lai and Samad, 2001; Liebenberg and Hoyt, 2003; Altunas et al., 2011; Golshan and Rasid, 2012; Yazid et al., 2012):
Risk aversion Value maximization
Reducing expected costs of financial distress Reducing risk premiums payable to various
partners Increasing investment possibilities Reducing expected tax payments
Additional Determinants
Firm’s Complexity Number of business segments (Gordon et al., 2009; Pagach and Warr,
2011; Golshan and Rasid, 2012).
Location of Subsidiaries Subsidiaries in UK, US, Canada, Australia, New Zealand (Liebenberg and
Hoyt, 2003; Beasley et al., 2005; Golshan and Rasid, 2012).
Leverage Likelihood of PRA adoption should increase with leverage (Brown and
Toft, 2002; Heaney and Winanta, 2005; Ephraim and Amrit, 2008).
Investment Opportunities Expenditures on R&D as a proxy (Nance et al., 1993; Bishop, 1996;
Khediri and Folus, 2010).Auditor Type Presence of ‘Big Four’ auditor (DiPiazza and Bremmer, 2006; MIGA 2009)
Hypotheses Overview
Conclusion and Contribution
International Business
Political Risk
Risk Management
Political Risk Assessment
Theoretical & Empirical Context CEE countries as a part of
international business arena
Managerial perception of home and host country political risk
Exposure of CEE companies to political risk in host-countries
Political risk assessment as a risk management function in CEE firms
Strategies of CEE managers for dealing with political risk
Thank you for listening…
Liberecké ekonomické fórum 201316th September, 2013