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We investigate the response of multinational corporations (MNCs) to major disasters at the subsidiary level. We examine the type and severity of the disaster and whether and how country governance moderates the relationship between exogenous disaster risk and subsidiary investment. We test our hypotheses with a panel dataset of 71 large European MNCs and their subsidiaries (2001–2006) with 31,285 total observations. Findings suggest that the number of a firm's foreign subsidiaries is likely to decrease in response to terrorist attacks or technological disasters but not natural disasters, regardless of the severity of the event. For terrorist activities, MNC subsidiary‐level disinvestment is less likely when the quality of host country governance is higher. Copyright © 2011 John Wiley & Sons, Ltd.

Research summary:Researchers have increasingly emphasized the need to better understand how context affects the value of experiential learning. We address this gap by investigating when corporate-level experience can be leveraged across borders and when experience needs to be country-specific to be valuable. We test our hypotheses using a unique multi-source panel dataset of 379 large MNCs from 29 home countries and their subsidiaries in 117 host countries over a 10-year period, 1999-2008. In contrast to prior research, we find that the ability of a firm to leverage its experience with political risk across borders is limited by the type of risk involved. Experience with nonstate violent conflicts may be transferrable, but only country-specific experience appears to yield measureable benefits for conflicts involving the host country government. Managerial summary: Violent conflicts not only increase social unrest but also impose added costs of doing business. For managers who find themselves in the midst of violent conflicts or whowish to survive and potentially gain a competitive advantage in operating in such challenging environments, is it possible to learn to manage such a seemingly "unmanageable" problem? In contrast to studies that have examined other types of political risk, we find that the ability of a firm to leverage its experience with violent conflict risk across borders is limited. Specifically, only country-specific experiential knowledge about how the host government prepares and manages such conflict risks yields measureable economic benefits for MNCs and their subsidiaries operating in countries during conflict.

We investigate whether firm experience with discontinuous risks, particularly high-impact disasters that are episodic and difficult to anticipate, moderates the relationship between disasters, foreign entry, and expansion decisions. Using a panel data set with 57,500 observations from 106 large European multinational corporations and their subsidiaries operating across 109 countries from 2001 to 2007, we find that although discontinuous risk was negatively related to firm entry and expansion, firms that had experience with high-impact disasters were more likely to expand in countries experiencing disasters.

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The purpose of this paper is to examine how multinational enterprises and their subsidiaries (MNE) can respond to violent conflict in the host countries where they operate and what types of strategic inventions are most appropriate. Drawing on insights from the conflict resolution, corporate social responsibility, and political risk literatures, we develop a framework that provides guidance to MNEs confronting violent conflict with respect to existing projects or facilities. This is the first paper, to our knowledge, to not only demonstrate that private sector firms may have a role to play in resolving violent conflicts and to identify strategic interventions, but also to specify the conditions under which different interventions are appropriate.