Geopolitical volatility and subsidiary investments

• 成果类型: Article
• 署名作者: Adarkwah, Gilbert Kofi; Dorobantu, Sinziana; Sabel, Christopher Albert; Zilja, Flladina
• 署名单位: Universite de Montreal; HEC Montreal; BI Norwegian Business School; New York University; Erasmus University Rotterdam; Erasmus University Rotterdam - Excl Erasmus MC; Copenhagen Business School
• 刊物名称: STRATEGIC MANAGEMENT JOURNAL
• ISSN/ISSBN: 0143-2095
• DOI: 10.1002/smj.3631
• 发表日期: 2024
• 页码: 2275-2306
• 关键词: foreign investment; Geopolitical Risk; Political affinity; political connections; volatility

摘要

Research SummaryWe examine how geopolitical volatility-the instability of bilateral political affinity between countries-affects foreign subsidiary investments. Building on prior work that shows that the level of political affinity between countries facilitates foreign investments, we argue that the volatility of political affinity impedes firms' ability to form expectations about stakeholder behavior and reduces subsequent investments in subsidiaries. We further argue that the effect of volatility of political affinity on foreign subsidiary investments is less pronounced when the level of political affinity between countries is high and when the firm has strong political connections at home. Our analyses examine 1054 US firms and their subsidiary investments in 106 countries from 2000 to 2015.Managerial SummaryGeopolitical risk has emerged as an important factor in foreign investment decisions in recent years. The rise of geopolitical tensions worldwide and the fragmentation of relationships between countries have introduced new dimensions to foreign investment risks. We study the propensity for sudden and unpredictable shifts in the political relationship between countries-that is, volatility of political affinity in their bilateral political relations-and its effect on firms' foreign subsidiary investments. We show that volatility of political affinity negatively affects the number of subsidiaries, employees, and local sales in the host country because when bilateral relations change suddenly, it is more difficult for multinational firms to predict how stakeholder behavior will impact the performance of their investments.