The credibility of a threat to nationalize (Q5953504)

From the conclusions: The author estimates that during a period of nationalization threats in South Africa the annual probability of nationalization without compensation was taken by investors to be \(1.4\%\). This probability of expropriation is estimated to have reduced the market value of the 13 South African gold mines used in the sample by a weighted average of \(4.8\%\) during the threat period. \dots{} NEWLINENEWLINENEWLINEThese empirical results have implications for optimal resource extraction studies that include the threat of expropriation and for project valuation in politically risky environments. In particular, the low credibility of the threat, although specific to the South African political environment, serves as a benchmark when estimating models of natural resource valuation, investment, and extraction under politically risky environments. NEWLINENEWLINENEWLINEThe mine valuation model used in this paper does not take into account option value associated with flexible asset management, and therefore the empirical testing excludes the substantial number of quarterly observations for which average profit was negative, and for which option value largely determined mine value. Future research might attempt to re-estimate the threat of expropriation using a model that takes these option values, and additional data points, into account.