Natural disasters and MNC sub-national investments in China

Abstract

Purpose The purpose of this study is to examine how foreign firms consider natural disaster risk in subsequent investment decisions in a host country and whether different location portfolios can serve to mitigate investment risk. Design/methodology/approach The author sample includes data on 437 Fortune Global 500 firms and their initial entry into Chinese provinces between 1955 and 2008. Findings Using a fixed effects logit model of discrete time event history analysis, results show that geographic proximity to same multinational corporation (MNC) subsidiaries and different MNC subsidiaries from the same home country mitigates the negative effect of natural disasters on MNC entry into an affected province, while geographic proximity to other MNC subsidiaries from different home countries does not. Originality/value The knowledge needed to respond to severe disasters appears to be highly context-specific and shared only between firms with a high degree of commonality and trust.

O efeito dos desastres naturais no investimento estrangeiro direto dos países

“…It can be seen that previous studies on this topic investigate different contexts, based on large European multinationals (Oh & Oetzel, 2011), on only one type of natural disaster, such as hurricanes (Yang, 2008) or in only one country (Anuchitworawong & Thampanishvong, 2015;Toner-Rodgers & Friedt, 2020;Oh, Oetzel, Rivera & Lien, 2020). The study closest to the one proposed by the present direct foreing investiment from countries…”

“…As the frequency and severity of disasters occur and increase, interest in this topic has expanded (Pelling et al, 2002;Oh et al, 2020). Many empirical studies have sought to identify the impact of increased natural disasters on economic development; however, the empirical evidence is somewhat inconclusive (Klomp & Valckx, 2014), and research dealing with disasters and their effects is still scarce (Oh & Oetzel, 2011;Toner-Rodgers & Friedt, 2020).…”

“…There is a constant interest in accounting for the replacement values of physical infrastructure, however, it is known that there are greater systemic impacts for economies affected by disasters (Pelling et al, 2002), such as the impact on FDI (Escaleras & Register, 2011;Katoka, 2020;Doytch, 2019;Oh et al, 2020). There are different types of disasters that can result in primary, secondary or tertiary damage, according to Pelling et al (2002), being possible to cogitate some predictions about the level of damage caused by disasters.…”

“…FDI occurs when an entity present in an economy decides to invest in a company resident in another economy, different from its own, usually involving a long-term relationship (Alfaro et al, 2004), and therefore, including multinational companies (Bailey, 2017). The host country is the one that receives the multinational (Katoka & Okubo, 2018), but before that, in its risk management, the multinational performs a careful analysis on the desirability of investing in that country, considering the potential for risk, including the observation of natural disasters (Oh et al, 2020).…”

“…Likewise, FDI has increased dramatically in recent decades (Kato & Okubo, 2018). In view of the increasing frequency and severity of natural disasters, managers of multinationals are being pressured to develop strategies that manage the effects of natural disasters on their companies (Oh et al, 2020). In this perspective, the following research question emerges: Can the damage to human and financial capital resulting from natural disasters influence countries' Foreign Direct Investment?…”