Political risk and international valuation


Journal Article

© 2015 Elsevier B.V. Measuring the impact of political risk on investment projects is one of the most vexing issues in international business. One popular approach is to assume that the sovereign yield spread captures political risk and to augment the project discount rate by this spread. We show that this approach is flawed. While the sovereign spread is influenced by political risk, it also reflects other risks that are likely included in the valuation analysis - leading to the double counting of risks. We propose to use "political risk spreads" to undo the double counting in the evaluation of international investment projects.

Full Text

Cited Authors

  • Bekaert, G; Harvey, CR; Lundblad, CT; Siegel, S

Published Date

  • April 1, 2016

Published In

Volume / Issue

  • 37 /

Start / End Page

  • 1 - 23

International Standard Serial Number (ISSN)

  • 0929-1199

Digital Object Identifier (DOI)

  • 10.1016/j.jcorpfin.2015.12.007

Citation Source

  • Scopus