Divestment response to host-country terrorist attacks: Inter-firm influence and the role of temporal consistency

Host-country terrorism poses extreme uncertainty to MNEs’ foreign operations. However, little is known about how MNEs respond to host-country terrorist attacks and how they make the related decisions. Drawing on the research on MNEs’ responses to exogenous shocks and the inter-firm imitation literature, we argue that MNEs obtain relevant information from peers’ actions under terrorist attacks to inform their own responses. Thus, MNEs are more likely to divest under host-country terrorist attacks when peers also divest. Furthermore, the impact of peers’ divestments on focal MNEs’ divestments is magnified by the temporal consistency in peers’ behavioral pattern under terrorist attacks, as temporal consistency reduces inferential difficulties. Empirical evidence based on 93 Fortune US companies and their 8698 foreign subsidiaries over 2005–2015 support our hypotheses. Our study extends the literature on MNEs’ responses to host-country exogenous shocks and on inter-firm imitation by demonstrating the social amplification of terrorism threat and the role of temporal consistency in inter-firm imitation under extreme uncertainty. Practically, we stress that MNE executives should always consider their firms’ idiosyncratic situations when modeling peer MNEs’ actions, and be mindful that they are especially likely to imitate peers’ temporally consistent behaviors under extreme uncertainty.