Political elections and corporate investment: International evidence

Abstract

Recent literature shows that the spike in uncertainty during political elections harms firms’ investment. Bridging insights from international business and political science, we argue that the effect of political elections on firms’ investment activities is contingent on the country’s electoral system. In particular, we expect the negative effect of elections on corporate investment to be smaller for firms operating in plurality systems. We test our theory using a panel dataset of listed firms around the world, and a panel of US multinationals. Our results confirm that during an election period, firms in countries with a plurality system reduce investment less than firms in other countries. Additionally, we show that multinationals’ foreign investment is affected by elections abroad: their investment in a host country declines during an election in that country, though to a lesser extent if the election is held with a plurality system. Collectively, our findings provide new evidence on the role of political institutions for firms’ investment decisions.

The relevance of bilateral political relations between countries for the completion stage premium of cross-border mergers and acquisitions

“…Third, our article contributes to an emerging body of work that accounts for the functions of bilateral political relations, which have been underdeveloped in research on cross-border M&A. In the context of international business, previous research literature on bilateral political relations between countries has mainly examined its impact on firms' outward investment choices (Holburn and Zelner, 2010;Kastner, 2007;Li et al, 2018a, b;Amore and Corina, 2021) and affirmed the positive role of bilateral political relations in promoting firms' foreign direct investment (FDI). In view of investors incorporating bilateral political relations when assessing the institutional legitimacy of overseas M&A (Liu et al, 2020;Wang et al, 2020), bilateral political relations will affect not only FDI but also cross-border M&A.…”

“…Previous studies on bilateral political relations have mainly focused on analyzing corporate's FDI, such as location selection for foreign investment (e.g., Li et al, 2018a, b), FDI (e.g., Holburn and Zelner, 2010;Amore and Corina, 2021) and trade (e.g., Kastner, 2007;Davis et al, 2019), arguing that good bilateral political relations and a better quality of the institutional environment in the host country promote the scale and investment success of corporate's FDI. A small number of studies have attached to the area of corporate crossborder M&A, examining the impact of bilateral political relations on cross-border M&A (John et al, 2016), initial M&A premiums (Bertrand et al, 2016), investors' response to the acquisition premium in cross-border M&A transactions (Fieberg et al, 2021), overseas market performance (Wang et al, 2020) and the role of political affinity on firms' post-acquisition performance from legitimacy-based view of political risk (Hasija et al, 2020).…”

“…Third, our study enriches the existing research with regard to bilateral political relations between countries. Prior literature has stressed the importance of bilateral political relations in promoting firms' FDI, for example, location selection for foreign investment (Li et al, 2018a, b), FDI (Holburn and Zelner, 2010;Amore and Corina, 2021) and trade (Kastner, 2007;Davis et al, 2019), and regarded bilateral political relations as a link to promote political mutual trust between countries, reduce investment risks and increase investment confidence, or link it with the role of providing a new institutional ownership advantage (Li et al, 2018a, b). Friendly bilateral political relations allow home country government personnel to interact more closely with various stakeholders in the host society and act as a liaison to facilitate interactions between people and organizations across borders (Li et al, 2018a, b), which indicates that bilateral political relations also play an indispensable role in the field of crossborder M&A.…”

Configuring political relationships to navigate host-country institutional complexity: Insights from Anglophone sub-Saharan Africa

“…Multinational enterprise (MNE) research has long considered non-market strategy to be an important determinant of internationalization (e.g., Funk & Hirschman, 2017 ; Zhao & Lu, 2016 ) and performance (e.g., Amore & Corina, 2021 ; Boddewyn & Doh, 2011 ; Sun, Doh, Rajwani, & Siegel, 2021 ). An MNE’s non-market strategy is its “concerted pattern of actions to improve its performance by managing the institutional or societal context of economic competition” (Mellahi, Frynas, Sun, & Siegel, 2016 : 144).…”

Effect of populism on the internationalization of emerging market firms

“…The political environment of home countries, which is more unstable in developing than developed economies (Bengtson et al , 2013), leads to repercussions on firm strategies (Earl and Rose, 2022). Various disciplines took this outside-in approach to analyze political issues such as populism (Casson, 2021); however, international business (IB) scholars displayed interest in political events only after the last financial crisis (2008–2009) due to increased uncertainty related to populist leaders and parties worldwide (Aguilera et al , 2019; Amore and Corina, 2021).…”