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The Determinants of the Adoption of a PRA Function in Czech International Firms: a Theoretical Framework

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, 16 th September. Presentation Outline. Introduction Research context and motivation

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The Determinants of the Adoption of a PRA Function in Czech International Firms: a Theoretical Framework

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  1. The Determinants of the Adoption of a PRA Function in Czech International Firms:a Theoretical Framework John Anchor and Hana Benešová, University of Huddersfield Libereckéekonomickéfórum 2013, 16th September

  2. Presentation Outline Introduction Research context and motivation PoliticalRiskAssessment (PRA) Theoretical concept Empiricalevidence PRA in Czechinternationalfirms FurtherResearchProposal Determinants of PRA adoption

  3. Research Context and Motivation Motivation • Political risk brings major uncertainty for international firms (Kobrin, 1981; Lucas, 1990; Haksoon, 2010) • Political risk is assessable and itsassessmentcan decrease potential material losses (e.g. Rice and Mahmoud, 1990; Stapenhurst, 1992; Burmester, 2000; Hood and Nawaz, 2004) • Very littleevidence about PRA function in CEE firms • International context of CEE countries increases potential political risks (Djankov and Murrell, 2002; Makhija, 2004)

  4. General Aim and Objectives General Aim • 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 Research Objectives Analysis of political risks identified by managers of Czech international firms Comparison of managerial concerns in Czech firmswith 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

  5. Theoretical Concept and Previous Studies • PRA is a process of analysing and evaluating political risk while undertaking international business activities Geographical Context

  6. 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

  7. 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).

  8. New Determinants of PRA Adoption Methodology • Questionnaire survey • Secondary data via Albertina database Determinants of PRA Adoption in Czech Firms • 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 • EnterpriseRiskManagementliterature reviewed to identify factors influencing ERM adoption decision

  9. 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

  10. 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)

  11. Hypotheses Overview

  12. Conclusion and Contribution Theoretical & Empirical Context • CEE countries as a part of international business arena • Managerial perception of home and host country political risk • Exposure of CEE companiesto 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

  13. Thank you for listening… Liberecké ekonomické fórum 2013 16th September, 2013

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