Does state ownership mitigate political risk in foreign direct investments? Evidence from subsidiary-level data for Norwegian MNEs
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.
Keywords
Acknowledgements
The authors are grateful to the Editor Bersant Hobdari and two anonymous reviewers for their guidance and constructive suggestions. The authors also thank Gabriel R. G. Benito, Sjoerd Beugelsdijk, Alvaro Cuervo-Cazurra, Timothy M. Devinney, Yan Du, Helge Hveem, Glenn Kristiansen, Bernardo Silveira Barbosa Correia Lima, Alessandra Luzzi, Lilach Nachum, Amir Sasson and Erik Aadland, as well as participants at the 2017 Annual EIBA Conference (Milan, Italy), the 2014 AIB Annual Meeting (Vancouver, Canada) and the 2012 Israel Strategy Conference (Tel Aviv, Israel) for helpful comments and suggestions related to this research project, and the employees of Statistics Norway for data preparation and advice. The usual disclaimer applies.
Citation
Rygh, A. and Knutsen, C.H. (2023), "Does state ownership mitigate political risk in foreign direct investments? Evidence from subsidiary-level data for Norwegian MNEs", Multinational Business Review, Vol. ahead-of-print No. ahead-of-print. https://doi.org/10.1108/MBR-08-2022-0117
Publisher
:Emerald Publishing Limited
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