Political risks apart from takeover of business can be related to taxation and currencies, licensing and wage and labor laws. These are the broad forms of political risks which can affect both the revenues as well as profitability of a company operating in foreign environment (Phung).
Taxation policies can change drastically in a foreign country due to the economic and political environment of the country. This can affect the profit levels and the attractiveness of the products in local currency terms. Currency devaluation can also result in lower profits, loss of business and lower valuation of assets in the foreign currency (Investing Answers).
Licensing laws with respect to operating certain kinds of business can change through protectionist policies towards some sectors or laws regarding minimum amount of local supply of raw materials etc. Wage and labor laws can result in increase in staff costs as well as strikes and labor unrest. This can lead to revenue losses and security concerns (Investing Answers).
The common financial factors which are to be considered while assessing country risk are sovereign debt levels and degree of stability related to revenue levels (Damodaran, 2015).
When the sovereign debt levels are very high, the paying capacity of the country decreases, which increases the country risk. Very high level of public debt can even lead to sovereign defaults, thus causing the cost of capital raising to increase drastically for foreign companies operating in that country (Damodaran, 2015).
References
Phung, A. What is political risk and what can a multinational company do to minimize exposure? Investopedia. Retrieved from http://www.investopedia.com/ask/answers/06/politicalrisk.asp.
Investing Answers. Political Risk. Investing Answers. Retrieved from http://www.investinganswers.com/financial-dictionary/stock-market/political-risk-636.
Damodaran, A. (2015). Country Risk: Determinants, Measures and Implications. Stern School of Business.
