Author order is alphabetical and reflects equal contribution.
Political capabilities, policy risk, and international investment strategy: evidence from the global electric power generation industry†
Article first published online: 7 APR 2010
Copyright © 2010 John Wiley & Sons, Ltd.
Strategic Management Journal
Volume 31, Issue 12, pages 1290–1315, December 2010
How to Cite
Holburn, G. L. F. and Zelner, B. A. (2010), Political capabilities, policy risk, and international investment strategy: evidence from the global electric power generation industry. Strat. Mgmt. J., 31: 1290–1315. doi: 10.1002/smj.860
- Issue published online: 7 APR 2010
- Article first published online: 7 APR 2010
- Accepted manuscript online: 7 APR 2010 12:00AM EST
- Manuscript Revised: 29 MAR 2010
- Manuscript Received: 18 FEB 2009
- foreign entry;
- location choice;
- foreign direct investment;
- political capabilities;
- political risk;
- policy risk
Whereas conventional wisdom holds that multinational enterprises (MNEs) invest less in host countries that pose greater policy risk—the risk that a government will opportunistically alter policies to expropriate an investing firm's profits or assets—we argue that MNEs vary in their response to host-country policy risk as a result of differences in organizational capabilities for assessing such risk and managing the policy-making process. We hypothesize that firms from home countries characterized by weaker institutional constraints on policy makers or greater redistributive pressures associated with political rent seeking will be less sensitive to host-country policy risk in their international expansion strategies. Moreover, firms from home countries characterized by sufficiently weak institutional constraints or sufficiently strong redistributive pressures will seek out riskier host countries for their international investments to leverage their political capabilities, which permit them to attain and defend attractive positions or industry structures. We find support for our hypotheses in a statistical analysis of the foreign direct investment location choices of MNEs in the electric power generation industry during the period 1990–1999, the industry's first decade of internationalization. Copyright © 2010 John Wiley & Sons, Ltd.