Danger from a distance: Executives' social distance and multinationals' responses to host‐country terrorist attacks

Abstract

This article examines whetherand under what conditions multinational enterprises (MNEs) are likely to divest a subsidiary exposed to host-country terrorist attacks. Drawing on construal level theory from social psychology, we propose that the association between subsidiaries' exposure to hostcountry terrorist attacks and MNEs' likelihood of divesting these subsidiaries depends on their executives' social distance from the event host country. Based on a sample of Fortune US 100 MNEs and their foreign subsidiaries from 2003 to 2014, we find that on average, MNEs are more likely to divest their subsidiaries when their exposure to host-country terrorist attacks increases; however, the effect is only prominent in host countries to which MNE executives are socially proximate. Managerial Summary: MNEs confronting terrorism threats in a host country sometimes respond by divesting subsidiaries exposed to the threats even when the high opportunity costs of divestment render this response irrational. We argue that the MNEs' divestment response may not be driven by rational economic calculations but by their executive' subjective threat perceptions. We investigate how top executives' subjective threat perceptions, as a function of their social distance from the event host country, influence MNEs' divestment decisions. We find that on average, MNEs do tend to divest their subsidiaries when they are

Host‐country terrorism and outward foreign direct investment location choice of Chinese multinational firms: The moderating roles of state ownership and immigrant influence

“…Existing literature mostly measures the severity of host‐country terrorism based on the number of terrorist attacks or the number of casualties caused by terrorism (Liu et al, 2022; Liu & Li, 2020). In addition, considering that the severity of terrorist attacks may be influenced by the size of different host countries (Dai et al, 2013), this study measures the severity of host‐country terrorism by the ratio of the number of terrorist attacks in the host country to its land area.…”

“…On the one hand, terrorist attacks exhibit unpredictability; the location, frequency, and severity of terrorist attacks are difficult to accurately predict (Jimenez & Lupton, 2021). On the other hand, terrorist attacks are nonpersistent; typically, a single terrorist attack has a short duration and its impact is not substantial enough to fundamentally alter a country's operating environment (Liu et al, 2022). Current international business literature focuses primarily on the impact of host‐country terrorism on the macro‐level outcomes (Bano et al, 2019; Ouyang & Rajan, 2017; Tingbani et al, 2019; Witte et al, 2017).…”

Violent conflict and multinational enterprises: identifying key frontiers in international business policy research

“…Violent conflict, however, results in sudden disruptions or even discontinuities in the IB environment (Klüppel et al, 2018). Decision-makers are thus forced to make high-stake decisions within a short period, during which they are also faced with extreme uncertainty and information scarcity (Liu et al, 2022). When violent conflict is unanticipated, the combination of surprise, high threat, and short decisionmaking time creates a crisis event for decision-makers (Eden et al, 2021).…”

“…The IB literature on violent conflict has analyzed a broad range of actions and events including, for example, terrorist attacks, civil wars, political conflicts, military conflicts, one-sided conflicts, and armed conflicts (e.g., Dai, Eden & Beamish, 2013Li & Vashchilko, 2010;Li, Tong, Xiao & Zhang, 2022;Liu & Li, 2020;Liu, Li, Eden & Lyles, 2022;Oetzel & Oh, 2014;Oh & Oetzel, 2011Witte et al, 2017). IB scholars have widely acknowledged that different types of violent conflict have different impacts on MNEs, depending on the violent conflict's core attributes (e.g., Dai et al, 2017;Oh & Oetzel, 2017;Witte et al, 2017).…”

The timing and mode of foreign exit from conflict zones: A behavioral perspective

“…International business (IB) scholars are now paying significant attention to this research area, chiefly examining the question of whether to exit from host countries suffering from violent conflict, with recent contributions focusing on war (Dai, Eden, & Beamish, 2013Eden, 2022), civil unrest (Hiatt & Sine, 2014;Soule, Swaminathan, & Tihanyi, 2014), armed conflict (Oetzel & Getz, 2012;Oh & Oetzel, 2011), and terrorism (Liu & Li, 2020;Liu, Li, Eden, & Lyles, 2022;Oh & Oetzel, 2011). However, without exception, these studies treat foreign exit as the outcome of interest, even as the antecedents of foreign exit from conflict zones may affect the timing and mode of exit in different ways.…”