The adoption of political risk assessment in emerging markets

Purpose – This chapter seeks to conceptualise a new approach to the identification of the factors influencing the adoption of a political risk assessment (PRA) function. By making use of firm value maximization and risk aversion and considering the rationale for risk management activities, a number of determinants are identified which can be deployed in future PRA studies.
Design/methodology/approach – A model for predicting the PRA adoption decision is proposed. Geographical contextualisation in one or more emerging markets (EMs) provides a further dimension of originality as well as reflecting an increasingly important international business phenomenon.
Originality/value – Political risk (PR) and political risk assessment (PRA) are of increasing
importance in the context of the growth and development of emerging markets (EMs). The latter provide opportunities for inward investment from more developed economies. There has also been a rapid growth in outward foreign direct investment (OFDI) from emerging markets to other economies. This chapter adds to the current understanding of PRA by examining this issue in emerging markets (EMs) through the model developed here.