Does state ownership mitigate political risk in foreign direct investments? Evidence from subsidiary-level data for Norwegian MNEs

Asmund Rygh, Carl Henrik Knutsen

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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.
Original languageEnglish
JournalMultinational Business Review
Early online date13 Sept 2023
DOIs
Publication statusE-pub ahead of print - 13 Sept 2023

Keywords

  • Foreign direct investment
  • Institutions
  • Norway
  • Political risk
  • State ownership
  • Subsidiaries

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