In the Eye of the Beholder: Political Risk, Regime Type, and China’s Multinational Corporations

44 Pages Posted: 15 Aug 2018 Last revised: 16 Jan 2019

See all articles by Weiyi Shi

Weiyi Shi

University of California, San Diego - GPS (nee IR/PS); University of California, San Diego (UCSD) - 21st Century China Center

Boliang Zhu

Pennsylvania State University - Department of Political Science

Date Written: August 1, 2018

Abstract

Chinese investment has been observed to favor politically risky destinations and authoritarian
countries, which is puzzling for the conventional understanding of multinational corporations.
One prevailing explanation is that Chinese firms’ embeddedness in risky, authoritarian institutions
at home enhances their capabilities to cope with risks abroad. We argue, however, that the risk
mitigation strategies firms employ in autocracies are often extra-institutional due to a lack of
institutionalized political access and credible commitments; they require the accumulation of
country-specific knowledge and political capital, and thus, are not easily transferrable. Therefore,
we expect that Chinese investors remain sensitive to political risks in host countries. Empirically
we leverage two experiments embedded in original surveys of business executives and find that
Chinese firms are deterred by a wide range of political risks and have no preference for autocracy.
Our study provides new insights into our understanding of the risk preferences and behavior of
Chinese investors.

Keywords: Political Risk, Regime Type, Emerging-Market Multinational Corporations, Survey Experiments, China

Suggested Citation

Shi, Weiyi and Zhu, Boliang, In the Eye of the Beholder: Political Risk, Regime Type, and China’s Multinational Corporations (August 1, 2018). 21st Century China Center Research Paper No. 2018-10. Available at SSRN: https://ssrn.com/abstract=3224685 or http://dx.doi.org/10.2139/ssrn.3224685

Weiyi Shi

University of California, San Diego - GPS (nee IR/PS) ( email )

9500 Gilman Drive
La Jolla, CA 92093-0519
United States

University of California, San Diego (UCSD) - 21st Century China Center ( email )

9500 Gilman Drive #0519
La Jolla, CA 92093-0519
United States

Boliang Zhu (Contact Author)

Pennsylvania State University - Department of Political Science ( email )

University Park, State College, PA 16801
United States

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