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Incorporating Country Risk In The Valuation Of Offshore Projects

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  • Donald R. Lessard
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    Abstract

    Offshore projects, especially those in emerging economies, are generally viewed as more risky, and thus as contributing less to shareholder value, than otherwise comparable domestic investments. Emerging economies are typically more volatile than the economies of industrialized countries. They also present a greater array of risks that are (perceived as being) primarily of a downside nature, such as currency inconvertibility, expropriation, civil unrest, and general institutional instability. Further, because such risks are relatively unfamiliar to the investing companies, the companies are likely to make costly errors in early years and to require more time to bring cash flows and rates of return to acceptable steady-state levels. 1996 Morgan Stanley.

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    Bibliographic Info

    Article provided by Morgan Stanley in its journal Journal of Applied Corporate Finance.

    Volume (Year): 9 (1996)
    Issue (Month): 3 ()
    Pages: 52-63

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    Handle: RePEc:bla:jacrfn:v:9:y:1996:i:3:p:52-63

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    Cited by:
    1. Geert Bekaert & Campbell R Harvey & Christian T Lundblad & Stephan Siegel, 2014. "Political risk spreads," Journal of International Business Studies, Palgrave Macmillan, vol. 45(4), pages 471-493, May.
    2. Samuel Mongrut & Dídac Ramírez, 2006. "Discount Rates in Emerging Capital Markets," Working Papers 06-03, Departamento de Economía, Universidad del Pacífico, revised Jun 2006.
    3. Pablo Fernández & Andrada Bilan, 2013. "110 Common Errors in Company Valuations," International Journal of Economics & Business Administration (IJEBA), International Journal of Economics & Business Administration (IJEBA), vol. 0(1), pages 33-78.
    4. Christopher Robertson & Anna Lamin & Grigorios Livanis, 2010. "Stakeholder Perceptions of Offshoring and Outsourcing: The Role of Embedded Issues," Journal of Business Ethics, Springer, vol. 95(2), pages 167-189, August.
    5. Estrada, Javier, 2003. "Cost of equity of Internet stocks: A downside risk approach, The," IESE Research Papers D/491, IESE Business School.
    6. Pereiro, Luis E., 2006. "The practice of investment valuation in emerging markets: Evidence from Argentina," Journal of Multinational Financial Management, Elsevier, vol. 16(2), pages 160-183, April.
    7. Fernandez, Pablo, 2004. "Most common errors in company valuation," IESE Research Papers D/565, IESE Business School.
    8. Fernandez, Pablo, 2003. "75 common and uncommon errors in company valuation," IESE Research Papers Db/515, IESE Business School.
    9. Fuenzalida, Darcy & Mongrut, Samuel, 2010. "Estimation Of Discount Rates In Latin America: Empirical Evidence And Challenges," Journal of Economics, Finance and Administrative Science, Universidad ESAN, vol. 15(28), pages 7-43.
    10. Gangemi, Michael A. M. & Brooks, Robert D. & Faff, Robert W., 2000. "Modeling Australia's country risk: a country beta approach," Journal of Economics and Business, Elsevier, vol. 52(3), pages 259-276.
    11. Durbin, Erik & Ng, David T.C., 2002. "The Sovereign Ceiling and Emerging Market Corporate Bond Spreads," Working Papers 127286, Cornell University, Department of Applied Economics and Management.
    12. Aktug, R. Erdem & Nayar, Nandkumar (Nandu) & Vasconcellos, Geraldo M., 2013. "Is sovereign risk related to the banking sector?," Global Finance Journal, Elsevier, vol. 24(3), pages 222-249.
    13. Bodnar, Gordon & Dumas, Bernard & Marston, Richard, 2003. "Cross-Border Valuation: The International Cost of Equity Capital," Working Papers 03-3, University of Pennsylvania, Wharton School, Weiss Center.
    14. Paul Vaaler & Barclay James & Ruth Aguilera, 2008. "Risk and capital structure in Asian project finance," Asia Pacific Journal of Management, Springer, vol. 25(1), pages 25-50, January.
    15. Mishra, Dev R. & O'Brien, Thomas J., 2005. "Risk and ex ante cost of equity estimates of emerging market firms," Emerging Markets Review, Elsevier, vol. 6(2), pages 107-120, June.
    16. Maria PASCU-NEDELCU, 2011. "Gaps Identified In Econometric Models For Cost Of Capital Estimation Already Built," Journal of Doctoral Research in Economics, The Bucharest University of Economic Studies, vol. 3(2), pages 49-58, June.
    17. Fernandez, Pablo, 2004. "80 common and uncommon errors in company valuation," IESE Research Papers D/550, IESE Business School.
    18. Remmers, Lee, 2004. "International financial management: 35 years later--what has changed?," International Business Review, Elsevier, vol. 13(2), pages 155-180, April.
    19. Samuel Mongrut Montalván & Didac Ramírez Sarrió, 2005. "Discount Rates in Emerging Capital Markets," Finance 0501013, EconWPA.
    20. Estrada, Javier & Serra, Ana Paula, 2005. "Risk and return in emerging markets: Family matters," Journal of Multinational Financial Management, Elsevier, vol. 15(3), pages 257-272, July.

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