RISK PERCEPTION AND FINANCIAL FACTORS AFFECTING ON CORPORATE PURCHASING DECISION OF EXPORT CREDIT INSURANCE (ECI) IN SRI LANKA

Abstract

According to the view of exporters, once a buyer is found willing to buy the products on credit, major problem is obtaining payment for goods really sold. Export credit insurance (ECI) is an insurance product which provides exporters with a coverage on losses which may occur when a foreign buyer fails to make payments. The financial stability of the company and credit risk perception will be key indicators of amount of insurance purchase. According to the credit risk bearing ability of the company and risk perception, the quantity of ECI purchase varies. This research paper addresses the exporting companies’ problem on their decision in choosing optimum amount of insurance coverage according to their credit risk bearing ability and risk perception. The objective of this research is to identify important financial factors and the risk perception influence on amount of insurance coverage and select the optimum amount of exports according to the insurance available. Sri Lanka Export Credit Insurance Corporation (SLECIC) is sole organization providing ECI in Sri Lanka. 47 companies among 127 exporting companies of Sri Lanka those obtained ECI in 2006 were selected by using the random stratified sampling technique and Ordinary Least Square regression model which was implemented to identify the risk perception and financial factors influencing the quantity of ECI purchase. The variable of probability of Bankruptcy risk, return of the firm, financial leverage, corporate size, accounts receivables, corporate governance, buyer evaluation charges and Short Solvency were taken in to account for measure credit risk bearing ability of the firm. Summated “Likert” scale was used to measure the risk perception. Log-linear model was most fitted model to choose optimum amount of insurance coverage and corporate size, buyer evaluation charges and accounts receivables of the firm are important financial factors in determining the ECI purchase in relation to exporting company credit risk bearing ability. Risk perception also significantly affect on corporate decision on ECI purchases.

Key words: Export Credit insurance, Financial Factors, Risk Perception

For full paper: fmscresearch@sjp.ac.lk