Working papers
Cautious Giants: Firm Size, Political Risk, and Foreign Direct Investment
The prevailing theories of foreign investment suggest that larger multinationals should be more willing than smaller multinationals to invest in markets with high political risk. To the contrary, I argue that large multinationals are especially unlikely to operate in high-risk markets because they have more resources to evade suboptimal markets and because their size makes them tempting targets for both state and non-state actors in host countries. I test this argument using an original dataset on all public US companies with subsidiaries abroad from 2007-2022. I find that larger firms are significantly more averse to operating in politically risky environments than smaller firms. I further test this core finding examining MNCs’ reactions to negative and positive shocks to political risk induced by coups and international agreements. I also present evidence consistent with the mechanisms outlined in the theory. These findings illustrate that firm size is an important factor in shaping multinational firms’ choice of FDI location: host countries eager for the dynamic and impactful investments of the largest firms must successfully mitigate investor uncertainty.
How Disasters Drive Action: Subsidiaries, Supply Chains, and Climate Lobbying
Climate change imposes costs on firms that are often difficult to estimate, while corporate climate action generates benefits that are non-rivalrous and non-excludable. This dynamic increases firms’ incentives to forgo climate action. Yet, corporate climate lobbying has risen generally across sectors. We develop a theoretical framework where disasters update firms’ perception of future costs, motivating present-day action. Ownership and production networks amplify this effect, while supplier substitutability hinders corporate climate action. Using a comprehensive dataset linking U.S. firms, domestic subsidiaries, and supply chain partners to environmental lobbying, we find that disasters affecting firms or their subsidiaries increase lobbying, while disasters impacting suppliers matter only when alternatives are scarce. We provide additional evidence that affected firms change their climate risk perception and lobby more on “pro-climate” and “narrow” bills. These results highlight how spatial and structural factors drive climate action in multi-unit, networked firms.