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The place of Political Risk Insurance in the political risk management strategy of multinational corporations

Author

Listed:
  • Violeta Iftinchi
  • Gheorghe Hurduzeu

Abstract

Confronted with a variety of political risks that affect their international activities, multinational corporations (MNCs) can use Political Risk Insurance (PRI) as a method to mitigate some of those risks. The aim of this article is to present the main characteristics of the PRI policies and participants, to highlight its benefits and to put forward three limitations that prevent MNCs in using PRI in their political risk management strategy (fluctuating capacity on the market, high premium rates and small compensation value). The recent trend in incorporating corporate social responsibility requirements as a pre-condition for providing PRI can contribute to lowering PRI premium rates.

Suggested Citation

  • Violeta Iftinchi & Gheorghe Hurduzeu, 2016. "The place of Political Risk Insurance in the political risk management strategy of multinational corporations," Romanian Economic Journal, Department of International Business and Economics from the Academy of Economic Studies Bucharest, vol. 19(60), pages 201-212, June.
    • Handle: RePEc:rej:journl:v:19:y:2016:i:60:p:201-212
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    References listed on IDEAS

    as
    1. Lijana Baublyte & Martin Mullins & John Garvey, 2012. "Risk selection in the London political risk insurance market: the role of tacit knowledge, trust and heuristics," Journal of Risk Research, Taylor & Francis Journals, vol. 15(9), pages 1101-1116, October.
    2. Kesternich, Iris & Schnitzer, Monika, 2010. "Who is afraid of political risk? Multinational firms and their choice of capital structure," Journal of International Economics, Elsevier, vol. 82(2), pages 208-218, November.
    3. Nathan M Jensen, 2005. "Measuring Risk: Political Risk Insurance Premiums and Domestic Political Institutions," International Finance 0512002, University Library of Munich, Germany.
    4. Sebastian Hain, 2011. "Risk perception and risk management in the Middle East market: theory and practice of multinational enterprises in Saudi Arabia," Journal of Risk Research, Taylor & Francis Journals, vol. 14(7), pages 819-835, August.
    Full references (including those not matched with items on IDEAS)

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    More about this item

    Keywords

    political risk insurance; risk management; multinational corporations;
    All these keywords.

    JEL classification:

    • F23 - International Economics - - International Factor Movements and International Business - - - Multinational Firms; International Business
    • G22 - Financial Economics - - Financial Institutions and Services - - - Insurance; Insurance Companies; Actuarial Studies
    • G32 - Financial Economics - - Corporate Finance and Governance - - - Financing Policy; Financial Risk and Risk Management; Capital and Ownership Structure; Value of Firms; Goodwill

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