Resource Nationalism Meets the Market: Political Risk and the Value of Petroleum Reserves

Journal of International Business Studies, Forthcoming

43 Pages Posted: 22 Mar 2007 Last revised: 8 Sep 2009

Robert J. Weiner

George Washington University - Department of International Business

Reid W. Click

George Washington University - Department of International Business

Date Written: July 29, 2009

Abstract

This paper investigates the effect of resource nationalism on the value of petroleum (crude oil and natural gas) reserves. We develop a framework for treating resource nationalism as political risk, and utilize data on reserve transactions and political risk ratings for the period 2000-2006. Controlling for other factors that affect reserve value, we demonstrate the value-destruction of political risk, and estimate the political-risk discount for 37 countries. The paper contributes to both the international-business literature and practitioner approaches to political-risk analysis in demonstrating use of publicly-available market data from real-asset transactions to measure the cost of political risk. We also show that the discount depends on market conditions – the higher are expected future petroleum prices, the larger is the discount at any level of political risk. This insight adds a new dimension to analysis of political risk, which is typically measured and examined without regard to market conditions.

Keywords: political risk, petroleum reserves, mergers, acquisitions

JEL Classification: F23, G34, L71, Q34

Suggested Citation

Weiner, Robert J. and Click, Reid W., Resource Nationalism Meets the Market: Political Risk and the Value of Petroleum Reserves (July 29, 2009). Journal of International Business Studies, Forthcoming. Available at SSRN: https://ssrn.com/abstract=971147 or http://dx.doi.org/10.2139/ssrn.971147

Robert Jonathan Weiner (Contact Author)

George Washington University - Department of International Business ( email )

2023 G Street NW
Washington, DC 20052
United States

Reid William Click

George Washington University - Department of International Business ( email )

2201 G Street NW Suite 401
Washington, DC 20052
United States
202-994-0656 (Phone)
202-994-7422 (Fax)

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