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Towards a behavioral theory of MNC response to political risk and uncertainty: The role of CEO wealth at risk

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  • Benischke, Mirko H.
  • Guldiken, Orhun
  • Doh, Jonathan P.
  • Martin, Geoffrey
  • Zhang, Yanze

Abstract

Drawing on behavioral agency research, we examine how CEO equity wealth at risk of loss in the form of restricted stock influences the response of multinational corporations (MNCs) to political risk and political uncertainty. In a sample of 14,765 cross-border greenfield investments and full acquisitions announced by U.S. firms from 2004 to 2016, we find that while greater CEO equity wealth at risk of loss in the form of restricted stock strengthens the (positive) relationship between political risk and MNCs’ choice of greenfield investments over full acquisition, CEO equity wealth at risk of loss does not influence the relationship between political uncertainty and MNCs’ choice of greenfield investments. We contribute to international business theory by introducing a behavioral theory of MNC responses to adverse host country political environments. As such, unlike previous studies that have treated political risk and political uncertainty interchangeably, our study highlights the need to differentiate between political risk and political uncertainty as related yet distinct concepts.

Suggested Citation

  • Benischke, Mirko H. & Guldiken, Orhun & Doh, Jonathan P. & Martin, Geoffrey & Zhang, Yanze, 2022. "Towards a behavioral theory of MNC response to political risk and uncertainty: The role of CEO wealth at risk," Journal of World Business, Elsevier, vol. 57(1).
    • Handle: RePEc:eee:worbus:v:57:y:2022:i:1:s1090951621000766
    DOI: 10.1016/j.jwb.2021.101265
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