Abstract

For several years, when setting discount rates Aswath Damodaran, Ph.D., has advocated more consideration of country risk premiums (CRP) when it comes to the valuation of companies with activities in emerging markets. We have to acknowledge that his approach is enjoying growing support among investment banks and auditing firms. At the same time, it is to be noted that Damodaran's concept has failed to resonate sufficiently with the academic community. This is reason enough to perform a systematic analysis and critical discussion of his CRP concept. Damodaran's initial considerations concerning a CRP can be found in Damodaran (1999a, 2003), with further essentially unchanged mentions in his more recent publications. In our contribution we will concentrate on the two aforementioned sources.