1. Does state ownership mitigate political risk in foreign direct investments? Evidence from subsidiary-level data for Norwegian MNEs.
- Author
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Rygh, Asmund and Knutsen, Carl Henrik
- Subjects
GOVERNMENT ownership ,POLITICAL risk (Foreign investments) ,INFRASTRUCTURE (Economics) ,FOREIGN subsidiaries ,GOVERNMENT business enterprises ,INTERNATIONAL business enterprises - Abstract
Purpose: Recent international business research finds that state-owned multinational enterprises (SOMNEs) invest relatively more in politically risky host countries than do privately-owned multinational enterprises (MNEs). This study aims to investigate theoretically and empirically whether state ownership mitigates the impact of host-country political risk on subsidiary economic risk. Design/methodology/approach: The authors link theoretical arguments on state ownership to arguments from non-market strategy literature to outline mechanisms whereby state ownership can buffer subsidiaries from political risk, weakening the link between host-country political risk and earnings volatility in subsidiaries. Using a data set on Norwegian MNEs' foreign subsidiaries across almost two decades, the authors test this prediction using both matching methods and panel regressions. Findings: While standard panel regressions provide empirical support only for the infrastructure sector and for the highest political risk contexts, nearest-neighbour matching models – comparing only otherwise similar private- and SOMNE subsidiaries using the full sample – reveal more general support for the political risk mitigation hypothesis. Originality/value: The study presents the first comprehensive analysis of whether state ownership can mitigate the effect of political risk on subsidiary economic risk. [ABSTRACT FROM AUTHOR]
- Published
- 2024
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