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Modeling firm specific internationalization risk: An application to banks’ risk assessment in lending to firms that do international business

TitleModeling firm specific internationalization risk: An application to banks’ risk assessment in lending to firms that do international business
Publication TypeWorking Paper
Year of Publication2016
AuthorsEriksson, K, Jonsson, S, Lindbergh, J, Lindstrand, A
KeywordsWorking Paper
Abstract

Drawing on internationalization process theory, we develop a new model for firm-specific
internationalization risk assessment. The model shows that firm-specific internationalization
risks can be determined from a firm’s experiences and from current business activities in a
firm’s network. Experiential risks are categorized as international, country market, network,
or relationship experience risks. Risk assessment in current network activities can be
determined from a firm’s dependency on a network and from the network’s performance and
evolution. We apply our model to credit risk assessment by banks and other credit institutions.
This article adds to research on financial institutions’ credit risk assessment by focusing on
firm-specific internationalization risk assessment, an area that has previously received little
attention in the literature. In addition, this article provides a better understanding of risk
assessment in the internationalization process, shedding light not only on the risks involved in
firms’ commitment to internationalization but also on the risks that banks and other
institutions take when they commit by lending to internationalizing firms.

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