Political Risk in Credit Evaluation: Empirical Studies and Survey Results

Financing trade between economic agents located in different countries is affected by many types of risks, resulting from incomplete information about the debtor, the problems of enforcing international contracts, or the prevalence of political and financial crises. Trade is important for economic development and the availability of trade finance is essential, especially for developing countries. Relatively few studies treat the topic of political risk, particularly in the context of international lending. This thesis explores new ground to identify links between political risk and international debt defaults. The core hypothesis of the study is that the default probability of debt increases with increasing political risk in the country of the borrower. The thesis consists of three essays that support the hypothesis from different angles of the credit evaluation process. The first essay takes the point of view of an international lender assessing the credit risk of a public borrower. The second investigates creditworthiness assessment of companies. The obtained results are substantiated in the third essay that deals with an extensive political risk survey among finance professionals in developing countries. The financial instruments of core interest are export credit guaranteed debt initiated between the Export Credit Agency of Finland and buyers in 145 countries between 1975 and 2006. Default events of the foreign credit counterparts are conditioned on country-specific macroeconomic variables, corporate-specific accounting information as well as political risk indicators from various international sources. Essay 1 examines debt issued to government controlled institutions and conditions public default events on traditional macroeconomic fundamentals, in addition to selected political and institutional risk factors. Confirming previous research, the study finds country indebtedness and the GDP growth rate to be significant indicators of public default. Further, it is shown that public defaults respond to various political risk factors. However, the impact of the risk varies between countries at different stages of economic development. Essay 2 proceeds by investigating political risk factors as conveivable drivers of corporate default and uses traditional accounting variables together with new political risk indicators in the credit evaluation of private debtors. The study finds links between corporate default and leverage, as well as between corporate default and the general investment climate and measeures of conflict in the debtor country. Essay 3 concludes the thesis by offering survey evidence on the impact of political risk on debt default, as perceived and experienced by 103 finance professionals in 38 developing countries. Taken together, the results of the thesis suggest that various forms of political risk are associated with international debt defaults and continue to pose great concerns for both international creditors and borrowers in developing countries. The study provides new insights on the importance of variable selection in country risk analysis, and shows how political risk is actually perceived and experienced in the riskier, often lower income countries of the global economy.

The effects of organic environmental toxicants on hard tissue formation in developing tooth : An in vitro study in mice

Dioxins are organic toxicants that are known to impair tooth development, especially dental hard tissue formation. The most toxic dioxin congener is 2,3,7,8-tetrachlorodibenzo-p-dioxin (TCDD). Further, clinical studies suggest that maternal smoking during pregnancy can affect child s tooth development. One of the main components of tobacco smoke is the group of non-halogenated polycyclic aromatic hydrocarbons (PAHs), a representative of which is 7,12-dimethylbenz[a]anthracene (DMBA). Tributyltin (TBT), an organic tin compound, has been shown to impair bone mineralization in experimental animals. In addition to exposure to organic toxicants, a well-established cause for enamel hypomineralization is excess fluoride intake. The principal aim of this thesis project was to examine in vitro if, in addition to dioxins, other organic environmental toxicants, like PAHs and organic tin compounds, have adverse effects on tooth development, specifically on formation and mineralization of the major dental hard tissues, the dentin and the enamel. The second aim was to investigate in vitro if fluoride could intensify the manifestation of the detrimental developmental dental effects elicited by TCDD. The study was conducted by culturing mandibular first and second molar tooth germs of E18 NMRI mouse embryos in a Trowell-type organ culture and exposing them to DMBA, TBT, and sodium fluoride (NaF) and/or TCDD at various concentrations during the secretory and mineralization stages of development. Specific methods used were HE-staining for studying cell and tissue morphology, BrdU-staining for cell proliferation, TUNEL-staining for apoptosis, and QPCR, in situ hybridization and immunohistochemistry for the expressions of selected genes associated with mineralization. This thesis work showed that DMBA, TBT, TCDD and NaF interfere with dentin and enamel formation of embryonic mouse tooth in vitro, and that fluoride can potentiate the harmful effect of TCDD. The results suggested that adverse effects of TBT involve altered expression of genes associated with mineralization, and that DMBA and TBT as well as NaF and TCDD together primarily affect dentin mineralization. Since amelogenesis does not start until mineralization of dentin begins, impaired enamel matrix secretion could be a secondary effect. Dioxins, PAHs and organotins are all liposoluble and can be transferred to the infant by breast-feeding. Since doses are usually very low, developmental toxicity on most of the organs is difficult to indentify clinically. However, tooth may act as an indicator of exposure, since the major dental hard tissues, the dentin and the enamel, are not replaced once they have been formed. Thus, disturbed dental hard tissue formation raises the question of more extensive developmental toxicity.