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.

Didactical reconstructions for organizing knowledge in physics teacher education

Physics teachers are in a key position to form the attitudes and conceptions of future generations toward science and technology, as well as to educate future generations of scientists. Therefore, good teacher education is one of the key areas of physics departments education program. This dissertation is a contribution to the research-based development of high quality physics teacher education, designed to meet three central challenges of good teaching. The first challenge relates to the organization of physics content knowledge. The second challenge, connected to the first one, is to understand the role of experiments and models in (re)constructing the content knowledge of physics for purposes of teaching. The third challenge is to provide for pre-service physics teachers opportunities and resources for reflecting on or assessing their knowledge and experience about physics and physics education. This dissertation demonstrates how these challenges can be met when the content knowledge of physics, the relevant epistemological aspects of physics and the pedagogical knowledge of teaching and learning physics are combined. The theoretical part of this dissertation is concerned with designing two didactical reconstructions for purposes of physics teacher education: the didactical reconstruction of processes (DRoP) and the didactical reconstruction of structures (DRoS). This part starts with taking into account the required professional competencies of physics teachers, the pedagogical aspects of teaching and learning, and the benefits of the graphical ways of representing knowledge. Then it continues with the conceptual and philosophical analysis of physics, especially with the analysis of experiments and models role in constructing knowledge. This analysis is condensed in the form of the epistemological reconstruction of knowledge justification. Finally, these two parts are combined in the designing and production of the DRoP and DRoS. The DRoP captures the knowledge formation of physical concepts and laws in concise and simplified form while still retaining authenticity from the processes of how concepts have been formed. The DRoS is used for representing the structural knowledge of physics, the connections between physical concepts, quantities and laws, to varying extents. Both DRoP and DRoS are represented in graphical form by means of flow charts consisting of nodes and directed links connecting the nodes. The empirical part discusses two case studies that show how the three challenges are met through the use of DRoP and DRoS and how the outcomes of teaching solutions based on them are evaluated. The research approach is qualitative; it aims at the in-depth evaluation and understanding about the usefulness of the didactical reconstructions. The data, which were collected from the advanced course for prospective physics teachers during 20012006, consisted of DRoP and DRoS flow charts made by students and student interviews. The first case study discusses how student teachers used DRoP flow charts to understand the process of forming knowledge about the law of electromagnetic induction. The second case study discusses how student teachers learned to understand the development of physical quantities as related to the temperature concept by using DRoS flow charts. In both studies, the attention is focused on the use of DRoP and DRoS to organize knowledge and on the role of experiments and models in this organization process. The results show that students understanding about physics knowledge production improved and their knowledge became more organized and coherent. It is shown that the flow charts and the didactical reconstructions behind them had an important role in gaining these positive learning results. On the basis of the results reported here, the designed learning tools have been adopted as a standard part of the teaching solutions used in the physics teacher education courses in the Department of Physics, University of Helsinki.