Multinationals' response to major disasters: how does subsidiary investment vary in response to the type of disaster and the quality of country governance?

TLDR

The study examines how multinational corporations adjust subsidiary investment in response to different types and severities of disasters and how host country governance moderates this relationship. The authors use a panel of 71 large European MNCs and their subsidiaries from 2001–2006, comprising 31,285 observations, to test hypotheses about disaster type, severity, and governance effects on subsidiary investment. The analysis shows that foreign subsidiary counts decline after terrorist or technological disasters but not after natural disasters, and that higher host‑country governance reduces disinvestment following terrorist events. © 2011 John Wiley & Sons, Ltd.

Abstract

Abstract We investigate the response of multinational corporations (MNCs) to major disasters at the subsidiary level. We examine the type and severity of the disaster and whether and how country governance moderates the relationship between exogenous disaster risk and subsidiary investment. We test our hypotheses with a panel dataset of 71 large European MNCs and their subsidiaries (2001–2006) with 31,285 total observations. Findings suggest that the number of a firm's foreign subsidiaries is likely to decrease in response to terrorist attacks or technological disasters but not natural disasters, regardless of the severity of the event. For terrorist activities, MNC subsidiary‐level disinvestment is less likely when the quality of host country governance is higher. Copyright © 2011 John Wiley & Sons, Ltd.