THE UNDERPINNINGS OF COUNTRY RISK ASSESSMENT

Abstract.  This paper surveys the history and current status of country risk assessment. The motivation is to understand why it is that country risk assessors have such a poor track record in anticipating the onset of financial crises. The development of the field reflects changes in the composition of international capital flows. These changes have confounded a definition of country risk, especially if a definition is centered on a particular event. It is then argued that the field has reached an impasse, and this impasse is related to the methods of abstraction and the current crisis of vision within the science of economics. This crisis of vision, as it pertains to theories of financial crises, has led to increased reliance on quantitative methods in the field of country risk. The paper concludes by proposing a new direction for the field, the first step towards which is to recognize that the object of country risk assessment is not to monitor for a particular event or symptom of financial crisis, but, rather, to monitor for a particular state of the economy.     

Sovereign rating changes—Do they provide new information for stock markets?

The purpose of this paper is to examine the impact of sovereign rating changes on international financial markets using a comprehensive database of 42 countries, covering the major regions in the world over the period 1995–2003. In general, we find that rating agencies provide stock and foreign exchange markets with new tradable information. Specifically, rating upgrades (downgrades) significantly increased (decreased) USD denominated stock market returns and decreased (increased) volatility. Whereas the mean response is contributed evenly by the local currency stock returns and exchange rate changes that make up the USD returns, only the foreign exchange volatility was behind the USD denominated return volatility. In addition, we find significant asymmetric effects of rating announcements. The market responses – both return and volatility – are more pronounced in the cases of downgrades, foreign currency debt, emerging market debt, and during crisis periods. This study has important policy implications for international investors’ asset allocation plans and for regulatory bodies such as the Basel Committee who increasingly rely upon Moody's, Standard and Poor's and Fitch's ratings for their regulatory regimes.     

Effects of Chinese consumers' relationship benefits and satisfaction on attitudes toward foreign fashion brands:The moderating role of country of salesperson

The paper examines the various responses of consumers depending on the country of salesperson (COS) and to look into the effects that consumer–salesperson relationship benefits have on consumer satisfaction and brand attitude. The results suggest that consumers' perceived social benefit and functional benefit positively influenced their satisfaction with salesperson, and a significant positive effect of consumers' satisfaction with salesperson on consumers' brand attitude is found. This positive relationship was moderated by COS. These findings suggest that COS will serve as an important retail mix for global marketers. Other results and management implications are also discussed.     

Does country risks predict stock returns and volatility? Evidence from a nonparametric approach

We use the k-th order nonparametric causality test at monthly frequency over the period of 1984:1–2015:12 to analyze whether aggregate country risk, and its components (economic, financial and political) can predict movements in stock returns and volatility of eighty-three developed and developing economies. The nonparametric approach controls for the existing misspecification of a linear framework of causality, and hence, the weak evidence of causality obtained under the standard Granger tests cannot be relied upon. When we apply the nonparametric test, we find that, while there is no evidence of predictability of squared stock returns barring one case, at times, there are nearly 50 percent of the countries where the aggregate risks and its components tend to predict stock returns and realized volatility.     

Advancing the country image construct — A commentary essay

This article provides a review of the study by Roth and Diamantopoulos (2009), “Advancing the country image construct,” with a view towards highlighting the gaps in the broader country-of-origin literature. The literature mostly ignores pivotal points that should influence both the direction and the design of country-related research in international marketing. At least six key considerations in country-of-origin research deserve concurrent attention in future studies. They include: (1) the globalization of markets, (2) ecologically appropriate designs, (3) country-of-origin knowledge, saliency, and use, (4) labeling practices and requirements, (5) a focus on appropriate segments, and (6) the role of country of origin in foreign direct investment process. This commentary essay explores these issues with a view towards enhancing the relevance, ecological validity, and the quality of future research efforts.     

Cross-cultural differences in upward ratings in a multinational company

Differences between countries in the favourability of upward ratings were examined in a multinational corporation. Data were collected from 6,400 subordinates in ten countries. The results showed that the US and European countries were higher than Brazil and Asian countries on a number of items. A discriminant analysis revealed sets of items that maximally discriminated between groups of countries. The results were interpreted post hoc based on Hofstede's (1984) study of country differences in cultural values. Some results indicated changes in values since Hofstede's data were collected twenty years ago, while others indicated that values in some countries have not changed. The results have implications for calibrating upward feedback and evaluating the need for, and likely effectiveness of, interventions to guide how an organization is managed.     

Consumer Willingness to Pay for Dairy Products With the 100% Canadian Milk Label: A Discrete Choice Experiment

ABSTRACT

A component of the supply management policy governing the Canadian dairy sector is a requirement that all milk and cream sold in Canada be sourced from Canadian producers. Cheese, yogurt, and ice cream, however, can be made using imported milk components. Recently, the Dairy Farmers of Canada launched a 100% Canadian Milk label for products that contain only milk and milk ingredients produced in Canada. Featuring a discrete choice experiment, a Canada-wide survey of dairy consumers is used to elicit their willingness-to-pay for milk and ice cream carrying the 100% Canadian Milk label. The results show that Canadian consumers are willing to pay more for milk and ice cream products that carry the label. Consumer knowledge of the dairy sector affects their willingness to pay for this labeling information. Implications for the use of the Canadian origin label and suggestions for further research are discussed.     

Human resource practices and firm performance of multinational corporations: influences of country origin

Drawing from a cultural values perspective, we investigate the effects of country origins on HR (human resource) practices of firms from the United States, Great Britain, Japan and Hong Kong operating in Hong Kong. In general, results supported hypothesized differences in HR practices of firms from different countries. In addition, results indicated that HR practices, specifically structural training and development and retention-oriented compensation, were related to various measures of firm performance. Of further interest was the finding that country origin moderated relationships of HR practices with firm performance; in general, relationships of structural training and development and retention-oriented compensation were stronger for Hong Kong firms. Implications of the results are discussed.     

Interactive effects of country of origin and product category on product evaluations

This research examined the effects of country of origin and product category on product evaluations for 21 countries and 18 products. As hypothesized, product evaluations were highest for highly-developed countries, followed by newly-industrialized, newly-marketizing, and developing-country groups. Further, the product-category and country-of-origin effects interacted such that, depending upon the country group, different product categories received more, equal, or less favorable evaluations compared to other product categories. Several variables and processes underlying these effects are identified and integrated into a conceptual model.     

Linkages between emerging and developed equity markets: Empirical evidence in the PMG framework

This paper empirically investigates the international equity market causal links between Central and South-Eastern Europe, on the one hand, and developed countries (Western Europe and the United States), on the other hand, over the monthly sample period spanning from October 2000 to September 2012. Unlike previous studies, we use the pooled mean group (PMG) approach of Pesaran et al. (1999), which is suitable to estimate dynamic heterogeneous panels to draw reliable conclusions. After cointegration is found between the stock markets of interest, the PMG estimates show evidence of each market's sensitivity to the fluctuations of the other markets over both the short- and long-run, supporting the feedback hypothesis. The impact of developed markets on emerging markets is more important than that of emerging markets on developed markets and the bidirectional impact is higher between emerging and Western European markets than between these emerging markets and the United States. These conclusions are robust to an alternative specification, which supports the view that the stock markets are closely interlinked. The findings are of great interest and have important implications for policy makers, investors, and practitioners.