全球国家风险评估：决定因素、措施和影响——2023年版-英-126页_15mb

Country risk has become increasingly relevant with globalization, affecting investments across different countries due to various sources such as economic life cycle stages, political instability, legal system weaknesses, and overdependence on specific industries or commodities. Political risk involves trade-offs between democracies and dictatorships, with democracies offering more continuous risk but dictatorships potentially causing more severe disruptions. Corruption, physical violence, and nationalization are significant sources of risk that investors and businesses face.

Measuring country risk is complex, relying on services like PRS, Euromoney, and the World Bank, but these have limitations in standardization and reliability. Sovereign default risk, measured through ratings (e.g., Moody's, S&P) and default spreads in bonds or credit default swaps (CDS), remains a key area, though there is debate about the accuracy and timeliness of ratings agencies. For equity investments, country risk may necessitate higher equity risk premiums, estimated through historical data, market-based approaches, or a combination of default spreads and equity volatility.

In valuation, country risk affects the cost of equity for companies. Different approaches include using the country's incorporation for uniform exposure or calculating operation-weighted average risks based on revenues or production facilities. Company-specific exposure, termed lambda, akin to beta but for country risk, helps refine these estimates.

Currency mismatches can distort valuations, so consistency is crucial; cash flows should be discounted in the same currency, often adjusted for expected inflation. Regardless of currency choice, value should remain invariant, and currency risk may not need additional discounting if properly accounted for in cash flows.

Overall, country risk is non-diversifiable to some extent and impacts investment decisions. Minimizing risks requires careful measurement and adjustment, ensuring that both country-specific and operational factors are addressed.

Aswath Damodaran, Stern School of Business, July 14, 2023.