From investment decisions to entry modes during uncertain times: national and international evidence

We are in times of persistent uncertainty regarding economic and social factors: the pandemic, de-globalization, disruption, populism and increasing distrust. My research seeks to better understand the role of domestic and multinational firms in this changing environment, looking at their behaviors and strategies. Environmental uncertainty has been extensively discussed in organization and strategy literatures, and now, more than ever, is becoming an area of higher concern for firms. Environmental uncertainty, seen as “the difficulty firms have in predicting the future, which comes from incomplete knowledge”, was largely studied by strategy scholars looking at economic shocks, demand fluctuations, regulatory changes, technological progress and natural disasters. The goal of my dissertation is about how companies manage business actions in response to a particular form of environmental uncertainty, political uncertainty, envisioned as the difficulty for firms to forecast government actions and to access key information on the regulations that a new government will implement, which in turn harm firms’ investment policies. In the first paper, bridging insights from international business and political science, we argue that the effect of political elections on firms’ investment activities is contingent on the country’s electoral system. In particular, we expect the negative effect of elections on corporate investment to be smaller for firms operating in plurality systems. We test our theory using a panel dataset of listed firms around the world, and a panel of US multinationals. Our results confirm that during an election period firms in countries with a plurality system reduce investment less than firms in other countries. Additionally, we show that multinationals’ foreign investment is affected by elections abroad: their investment in a host country declines during an election in that country, though to a lesser extent if the election is held with a plurality system. Collectively, our findings provide new evidence on the role of political institutions for firms’ investment decisions. In the second paper, I study the trade-off between acquisitions and alliances in the context of elections by looking at the costs and benefits of companies' business configurations. By testing my assumptions on a dataset of US companies during government elections between 1990 and 2018, I show that companies in states that hold elections, and therefore subject to greater political uncertainty, prefer alliances to acquisitions. I then show that this result varies according to the similarity and complementarity of business between the two companies: during political elections, companies whose business is similar prefer to engage in acquisitions or alliances - as opposed to internal development - and prefer acquisitions as opposed to alliances. On the contrary, companies whose business is complementary prefer not to ally or acquire with respect to internal development. Overall, my findings provide new insights into the importance of political uncertainty in shaping business strategies. In the third paper, we analyze the impact of growing populism on national and multinational investments. Combining insights from international business and political science, we develop various hypotheses about how a populist government and firm’s geographic scope shapes corporate investment decisions. By testing our hypotheses on a global dataset of firms from 1994 to 2020, we show that firms in populist countries reduce investment more than those in non-populist countries. However, our results highlight that the type of populism matters, as left-wing populism amplifies this negative effect compared to right-wing. Overall, our results provide new evidence in the literature on the influence of populism on corporate investment activities.