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The Impact of Institutional Environment on Risk Assessment

Author

Listed:
  • Dušan Steinhauser
  • Zuzana Borovská

Abstract

The purpose of this research is to investigate the relationship between the institutional environment of the studied countries and the Coface Country Risk Assessment. To meet this object, we used quantitative methods in the form of descriptive and regression analysis. The result was an evaluation of the actual Coface Country Risk Assessment and its value prediction for chosen countries. The authors quantified the impact of the institutional environment using The Heritage Index of Economic Freedom subindexes on the risk assessment indicator of the major private insurance company Coface, which is not so often used in the scientific sphere and is regularly updated. The results suggest a positive correlation between the Coface Country Risk Assessment and Government Integrity, Fiscal Health, Financial Freedom and Property Rights. Although Tax Burden is a statistically significant factor, its parameter was detected with an unexpected sign. For this reason, authors abstracted from it. Subindexes Government Spending, Business Freedom, Monetary Freedom, Trade Freedom, and Investment Freedom were statistically insignificant. Control variable Public Debt as a share of gross domestic product was insignificant as well. Implications for Central European audience: The article applies the Coface Country Risk Assessment, which has so far been rarely used in the scientific literature. We present the current and predicted values of the Central European Countries, but also the countries interesting from their point of view due to trade and investment opportunities. Many countries, including those in Central Europe, show differences between actual and predicted values.

Suggested Citation

  • Dušan Steinhauser & Zuzana Borovská, 2022. "The Impact of Institutional Environment on Risk Assessment," Central European Business Review, Prague University of Economics and Business, vol. 2022(2), pages 61-79.
    • Handle: RePEc:prg:jnlcbr:v:2022:y:2022:i:2:id:288:p:61-79
    DOI: 10.18267/j.cebr.288
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    References listed on IDEAS

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    1. Suhejla Hoti & Michael McAleer, 2004. "An Empirical Assessment of Country Risk Ratings and Associated Models," Journal of Economic Surveys, Wiley Blackwell, vol. 18(4), pages 539-588, September.
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    3. Nguyen Ba Trung & Taise Kaizoji, 2017. "Investment climate and firm productivity: an application to Vietnamese manufacturing firms," Applied Economics, Taylor & Francis Journals, vol. 49(44), pages 4394-4409, September.
    4. Tyler Muir, 2017. "Financial Crises and Risk Premia," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 132(2), pages 765-809.
    5. Aven, Terje, 2012. "The risk concept—historical and recent development trends," Reliability Engineering and System Safety, Elsevier, vol. 99(C), pages 33-44.
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    More about this item

    Keywords

    Coface Country Risk Assessment; institutional environment; economic freedom;
    All these keywords.

    JEL classification:

    • C52 - Mathematical and Quantitative Methods - - Econometric Modeling - - - Model Evaluation, Validation, and Selection
    • E02 - Macroeconomics and Monetary Economics - - General - - - Institutions and the Macroeconomy
    • G22 - Financial Economics - - Financial Institutions and Services - - - Insurance; Insurance Companies; Actuarial Studies
    • O50 - Economic Development, Innovation, Technological Change, and Growth - - Economywide Country Studies - - - General

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