An Empirical Assessment of Country Risk Ratings and Associated Models

Journal of Economic Surveys (Impact Factor: 1.33). 02/2004; 18(4):539-588. DOI: 10.1111/j.0950-0804.2004.00230.x
Source: RePEc

ABSTRACT Country risk has become a topic of major concern for the international financial community over the last two decades. The importance of country ratings is underscored by the existence of several major country risk rating agencies, namely the Economist Intelligence Unit, Euromoney, Institutional Investor, International Country Risk Guide, Moody's, Political Risk Services, and Standard and Poor's. These risk rating agencies employ different methods to determine country risk ratings, combining a range of qualitative and quantitative information regarding alternative measures of economic, financial and political risk into associated composite risk ratings. However, the accuracy of any risk rating agency with regard to any or all of these measures is open to question. For this reason, it is necessary to review the literature relating to empirical country risk models according to established statistical and econometric criteria used in estimation, evaluation and forecasting. Such an evaluation permits a critical assessment of the relevance and practicality of the country risk literature. The paper also provides an international comparison of risk ratings for twelve countries from six geographic regions. These ratings are compiled by the International Country Risk Guide, which is the only rating agency to provide detailed and consistent monthly data over an extended period for a large number of countries. The time series data permit a comparative assessment of the international country risk ratings, and highlight the importance of economic, financial and political risk ratings as components of a composite risk rating. Copyright Blackwell Publishers Ltd, 2004.

  • Source
  • Source
    [Show abstract] [Hide abstract]
    ABSTRACT: Country risk reflects the ability and willingness of a country to service its financial obligations. This paper analyses the country risk returns, or the rate of change in the risk ratings compiled by the International Country Risk Guide, which provides extended monthly data for numerous countries. A constant conditional correlation asymmetric VARMA-GARCH model is estimated and tested for Australia, Canada, Japan and the USA. The empirical results enable an analysis of the conditional means and volatilities of risk returns, highlight the importance of the economic, financial and political components of a composite risk rating, and evaluate the spillover effects of risk returns.
  • Source
    [Show abstract] [Hide abstract]
    ABSTRACT: This conceptual article looks at corporate responsibility (CR) and country risk claiming that there is a relationship, and then positing the directionality of the relationship. An understanding of this relationship can help firms respond to a variety of pressures from organizations and this knowledge may help firms prevent negative media coverage with the need to “bolt” CR strategies on to existing corporate strategies. When firms have an understanding of how country risk affects them, they can plan entire clusters of CR initiatives to fulfill needs within the operating community. To understand the CR–country risk relationship, the authors build on Matten and Moon’s (2008) distinction between implicit and explicit CR. The first argument is that firms engage in no explicit CR (explicit CR that is voluntary and goes beyond legal requirement) when country risk is very high. As country risk lowers to high, firms engage in explicit CR, which creates little impact to the firm if CR must be withdrawn. The second argument is that as country risk shifts to moderate, firms commence to engage in high levels of explicit CR and low levels of implicit CR. The third argument concludes that when country risk shifts to low or very low, firms will engage in the least amount of explicit CR and the most amount of implicit CR. A set of three propositions develops these arguments.
    Business & Society 10/2014; 53(5):625-651. · 1.94 Impact Factor

Full-text (2 Sources)

Available from
May 15, 2014