Global Journal of Management and Business Research, B: Economics and Commerce, Volume 20 Issue 1

objectives(IIA 2009). Knowing GPR is not just about forecasting market and price instability events, but it is more helpful at scanning the business environment to help strengthen investing strategy when faced with geopolitical events.(Malmgren 2015).For this research, three risk-associated variables (geography, politics, and macroeconomics) determine GPR. This paper contributes to the literature on the rational model of decision theory, which states that the client firstly must be aware of the problem before deciding an investment decision. This paper is among the few that measures GPR with three variables (Geography, macroeconomics, and politics), and finally, this research treats GPR as a business risk. The organization of this paper is as follows; Section two talks of the literature review. Section three is for data and methodology. The result and discussion are in four. Finally, five talks of the conclusion and implications of the research. II. L iterature R eview a) Theoretical Framework Risk management relies on the concept rooted from decision theory (Vaughan 1997) , which means that, the theory of decision with specific emphasis on normative and rationalistic models for decision making, connect risk management and investment .Steele and Stefánsson (2015) stated that decision theory focuses on the proof (reasoning) of an agent’s choice. The normative and rationalistic model explained the ideas and logic of how decisions are made, taking into cognizance the decision maker’s awareness of the issue or problem, putting forward expected outcomes, carefully creating strategies to weigh alternative means, and deciding what alternative is reasonably accepted (Simon 1960). Risks and uncertainties are the fundamental challenges facing decision-makers. Therefore, risk management attempts to tackle the unpredictability that hinders the achievement of objectives.(Commission 2004). b) Conceptualization i. Understanding Risk Appetite and Risk culture, and the Nature of Risk Management Collier and Agyei-Ampomah (2006), Stated to understand the nature of risk management, it is useful to know the risk appetite and risk culture of the organization. Risk appetite is the volume or amount of risk an organization is willing to take in pursuit of value. While the shared attitudes, values, and practices that define how an organization view risk in its daily activities is what is called the risk culture. Wu, Roebuck et al. (2002), explained that the conditions and forces within an organization’s internal environment, industry forces, and macro-environmental forces are the factors that give rise to business risk. Millichamp (2002), explained that external factors stem from outside the entity and include: change in legislation; interest rates change; change in the exchange rate; perception or attitude of the public; untested technology; natural threats (such as floods); bad-debt; judicial matters; environmental issues. He continued that any of these factors could adversely affect an organization, which in turn have an impact on its financial statement. Moeller (2007), explained that risk management is a process that starts from the identification of risks to how to respond to these risks. According to Curtis and Carey (2012), risk management involves the following stages: having an in-depth knowledge on the universe of risks that constitute to the organization’s risk profile; attaching values to them(risks) using a define set of criteria including both qualitative and quantitative techniques; assessing and managing their interactions by viewing risk as a holistic approach; determining risk management priorities by comparing the level of risk against the organization’s target risk levels and tolerance thresholds; and deciding on how to respond to risks. ii. Geopolitics, Geopolitical Risk and Investment In her book-,Geopolitics for Investor Malmgren (2015), explained that geopolitics is more than just foreign policy but an inclusive subject also dealing with vulnerability to events that are not in the scope of a country’s control. Earliest definition of geopolitics was about the interactions of geography with power and the role in international affairs of state (Kjellén 1911),since then the concept had included subject like international economics, and political integration (Agnew and Corbridge 1989), modern approach of the topic geopolitics concentrate on political discourse among international players stemming from all factors that determine the political and economic importance of a country's geographic location.(Victor, Jaffe, et al. 2006) Geopolitics is a non-quantifiable risk, but dismissing it because of its non-quantifiable nature can cause a lot of damages for investors(Malmgren 2015).As a result of this, identifying GPR is becoming an important issue for investors. When uncertainty is too high, it can cause depression in investment, i.e., firms may prefer to wait for the uncertainty to resolve.(List and Haigh 2010, Julio and Yook 2012, Gulen and Ion 2015, Kim and Kung 2016). iii. Components of Geopolitics: Geography, Politics, and Macroeconomic Generally, geography is the study of the World and its features. Dictionary (2006) says, “Geopolitics is the study of how geography and economics have an influence on politics and the relations between nations and a study of the influence of such factors as geography, economics, and demography on the politics and especially the foreign policy of a state.”Malmgren Geopolitical Risks (GPRs) and Foreign Direct Investments: A Business Risk Approach © 20 20 Global Journals 2 Global Journal of Management and Business Research Volume XX Issue I Version I Year 2020 ( ) B