Investing with Political Risk - Annotated Bibliography Example

Bertomeu, J., & Cheynel, E. . Toward a positive theory of disclosure regulation: In search of al foundations. Accounting Review, 88(3), 789-824. The question of standardized accounting procedure has been an issue of immense importance for the firms for years. At academic level this issue could be justified by deriving theoretical framework, however, at practical scale there are several limitations. Financial reporting is indisputably one of the most regulated parameters. The rationale behind the convergence of accounting procedure is to direct the process towards standardization. The need of developing standardized protocols of regulations is global, since the flow of wealth needs to be properly channelized, and attempts must be made in order to minimize the chances of biased flow of capital. In this article, the focus is on developing theory of standardize-setting, which seems essential for understanding the political economy of regulation and its interaction with other market determinants. The idea presented by the authors of this study is to investigate the institutional foundations of disclosure regulations. Further, Bertomeu and Cheynel propose paradigm shift in the ongoing debate on accounting standards, they propose that criticism of accounting standard is not as crucial, as the scrutiny of institutes that formulate these standards. Last but not the least this paper evaluate the concepts of the accounting standards, and analyze the political influence in the institutions that affects the disclosure regulations. Clark, E., & Tunaru, R. (2001). Emerging markets: Investing with political risk. Multinational Finance Journal, 5(3), 155-175. In this article, Clark and Tunaru (2001) have proposed a model that determines the impact of political risk on investment portfolio. The authors have devised a multivariate approach that generalizes the single country model, yet retains the characteristics for determining political risk, and expected frequency of loss causing events. Portfolio investment offers diversification benefits in emerging markets, however, they are not free of risks, and they are hindered by market risks as well as by political risks. In case of developed economies these risks are less likely to materialize, but in developing countries there is a greater probability for such events to occur. Therefore, there is a need for developing sound theoretical and practical framework in order to assess risks before they turn into an event. The proposed methodology in this paper is simple and straightforward; further this approach is suitable for modern portfolio theory, as well as for traditional techniques in political risk assessment for the estimation of relevant measures. Moreover, this methodology is also suitable for two-country model. As it attempts to investigate all the various factors that may be linked with political risk assessment and investment portfolio. Kim, J. R. ( 2002). The stock return-inflation puzzle and the asymmetric causality in stock returns, inflation and real activity. Economic Letters, Vol. 80, 155-160. Kim (2002) has used a modified concept of Granger- (non)causality for revisiting the inverse correlation between stock returns and inflation. The purpose of pursuing is to make an empirical attempt at understanding stock return-inflation puzzle. Kim further argues that stock return show real activity, while inflation does not have any link with stock return, this is confirmed by applying proxy hypothesis in a multivariate data set. Proxy hypothesis has been tested by Granger causality, by considering symmetrical and asymmetrical measures of causality. The empirical analysis of the aforementioned problem statement has been conducted on the basis of three variables, they include portfolio, inflation, and the value weighted German stock index (DAX). The results obtained in this study verify two things, first it confirms the proxy hypothesis, and second it also elaborates the understanding of the negative correlation of stock return on the real activity. Further, the outcome of the analysis on the quarterly data for Germany including inflation, stock returns and growth rates of GDP suggests that the proxy causality between inflation and stock returns is an asymmetric one; similarly the indicative role of stock returns on growth rate of GDP may also be linked asymmetrically. Cunha, A. (2013). On the relevance of floating exchange rate policies. Economic Theory, 53(2), 357-382. Cunha has communicated the information in an unconventional style. The focus of this paper is relevancy of floating exchange rate policies. He argues on decentralization that is a resultant of floating exchange policy. Moreover, this paper uses statistical approach to test the hypothesis, and evaluate the performance of floating exchange rate policy in small countries. The main area under discussion in this paper is national economic policy. In this paper the outcome of floating economy and market are analyzed. The information obtained from the analysis of the data generated, suggests that floating exchange policy is not the ideal way, but it has become necessary from smaller markets for survival; therefore, the concept of floating market remains a useful tool for developing countries. Graham, J., Lemmon, M., & Wolf, J. (2002). Does corporate diversification destroy value? Journal of Finance, 57(2), 695-720. In this paper, the authors have tried to analyze the effects of corporate diversification, via acquisition and expansion; the aim of this study was to reconsider the predisposed risks of devaluation associated with corporate diversification. During the 1990s it was argued by the academic researchers that corporate diversification destroys value; however, by analyzing the literature it is observed that conglomerate firms are discounted as low as 15%, which clearly suggest that the data is skewed and biased, and if every segment is dealt as individual, then the value is not dropped. Graham, Lemmon and Wolf (2002) further argue that the assumption of devaluation regarding diversification and expansion of firm is not universal, definitely when companies merge or are acquired they are discounted, but placing the value near -15 is not the right way to go. These companies must be placed close to zero. Thus from the results obtained in this study suggests that diversification and expansion does not harm the value of firms as much as it was earlier assumed. Therefore, expansion or diversification is not as risky as it was previously believed. Further, according to Graham, Lemmon and Wolf (2002) the excess value does not decline with increase in number of business segments because of pure reporting changes. Edison J. H. & Reinhart C. M. (2000). Capital controls during financial crises: the case of Malaysia and Thailand. Board of Governors of the Federal Reserve System International Finance Discussion Papers 662. 1-38 The focus of this paper is capital control. In this article the case study of two countries has been considered, they include Malaysia and Thailand. The data from the two countries is obtained from 1997-1999. The purpose of conducting this research was to determine the plausible capital control policy, and to analyze the steps required to monitor and manage influx and efflux of capital. The methodology applied acquired monthly and daily data. The analysis of the data acquired and the comparison between the capital controls of the two countries suggests that capital control in Thailand did pay off as it was expected to. However, for Malaysians it worked out at a nominal level. The purpose of holding capital during financial crisis is to minimize the chance of external build up. However, the authors accept the limitation of their research and data they acquired, but they also suggest that the timing of capital control and type of controls may affect the efficacy of this strategy. In case of Thailand it offshore banks showed leakage, which prevented the desired outcome of capital control. Wood A. (1997). Openness and Wage Inequality in Developing Countries: The Latin American Challenge to East Asian Conventional Wisdom. The World Bank Economic Review, Vol. 11, No. 1, A Symposium Issue on How International Exchange, Technology, and Institutions Affect Workers. 33-57 Developing countries have bulk of unskilled human resource, while skilled labor is scarce. Unemployment and wage differentials are two related concepts. Adrian Wood (1997) has analyzed the case of two developing regions on globe from different eras. The focus of the study was to investigate the matter of wage difference in the East Asia during 1960-70s, and compare it with the developing countries of Latin America during 1980s. Wood (1997) has attempted to answer the discrepancy in results of open trade in both regions, and the way wages of unskilled and skilled labor have been affected by economic transformation. The author starts off his analysis by providing a simple model offered by Heckscher-Ohlin, which suggests that openness of market is always beneficial for developing countries, since it minimizes the difference of wage between skilled and unskilled labor, and developing countries have an unlimited supply of unskilled members, compared to fractional population of skilled workers. However, this theory does not support the factual data obtained from Argentina, Columbia, and Venezuela, during 1980s. Wood argues that it is irrational to clearly blame the simple model of openness of market; according to him there are various other factors that must be considered before drawing conclusions. It may be concluded the development in science and technology, along with shift in the international trade, and political orientation of the countries in the Latin America are more responsible for the discrepancy in results obtained. Song, K., & Lee, Y. (2012). Long-term effects of a financial crisis: Evidence from cash holdings of East Asian firms. Journal of Financial & Quantitative Analysis, 47(3), 617-641. Cash holding has been used as method of minimizing external pressure by different firms all across the globe in order to minimize the economic damages in the post-crisis environment. Song and Lee investigated the records of the East Asian Firms, regarding the financial crisis of 1996-97. The information regarding different East Asians firms was obtained by preparing sample from Thompson Financial’s Worldscope. The investigation was limited to eight East Asian Countries they include Hong Kong, Indonesia, Malaysia, the Philippines, Singapore, South Korea, Taiwan, and Thailand. From the data obtained it was determined that these firms minimized their investment, and opted for preserving cash in their account. This article proposes that the opting of cash holding is attributed to the demand of cash by the organization, instead of changes in the environment. Further, it was observed that the trend of holding cash in crisis showed an increase; in 1996 the median of cash holding was 6.7%, which was raised to 12.1% in 2006. Thus, it can be concluded that countries tend to stay on guard during financial crisis, and they opt for stagnation by holding cash, instead of being adventurous and making investments. Poghosyan, T., & Poghosyan, A. (2010). Foreign bank entry, bank efficiency, and market power in Central and Eastern European Countries. Economics of Transition, 18(3), 571-598. The authors belong to the University of Groningen, the Netherlands; in this article they have attempted to investigate the entry of foreign banks into Central and Eastern European countries, and further they tried to evaluate the effects of foreign banks on bank efficiency and market power. There is no conclusive evidence that would suggest whether the entry of foreign banks is healthy or harmful; from the available literature mixed outputs are obtained. For instance foreign banks may increase the competition between banks in host countries, and this competition may improve the banking outlook of a nation, however, this only the case in developing countries that have staggering banking systems, while in developed countries the entry of foreign bank may produce unhealthy results. For the evaluation of the impact of foreign banks into the banking sector of CEECs the stochastic efficiency frontier methodology (SFA) was applied. The results obtained from this study suggest that there has been an improvement in the performance of bans in the CEECs, suggesting that the entry of foreign banks into the region increased market power and banking efficiency. However, these findings must not be considered as absolute, as the study only focused on limited aspects, and it did not consider the financial stability of the countries. Kasilingam, R., & Jayabal, G. (2012). Profitability and solvency analysis of a manufacturing company using Dupont and Altman model. BVIMR Management Edge, 5(2), 53-64. In this paper Kasilingam and Jayabal (2002) have analyzed profitability and solvency of a company using Altman model and Dupont. The purpose of using these statistical frameworks is to determine the future direction, as well as to analyze the barriers or hindrances in the path of development. The authors offer a review of literature that support this approach, and they justified their approach with previously published literature. Liquidity, leverage, profitability, and operating efficiency of a company can be obtained by generation of a comprehensive financial statement that must include cross sectional perspectives and time series. The Dupont analysis of a firm considers three factors that include asset turnover, equity multiplier, and profit margin; in this study the aforementioned factors affecting Dupont showed a negative trend; which has further affected the firm’s equity shareholders. The positive correlation between ROE, assets turn over, and equity multiplier; suggests that the company must increase its sales volume that will eventually increase asset turnover. Thus, from the results of the analysis, it is evident that the company is not insolvent but it is heading towards insolvency, unless measures for increasing sales volume are not adopted. Read More