Institutions sans frontières: International agreements and foreign investment

We examine whether the presence of International Investment Agreements (IIAs), negotiated among countries for foreign investor protection, lowers political risk faced by multinational enterprises (MNEs). Drawing on research from international business, political science, and international law, we ar...

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Bibliographic Details
Published in:Journal of international business studies 2014-08, Vol.45 (6), p.649-669
Main Authors: Jandhyala, Srividya, Weiner, Robert J
Format: Article
Language:English
Subjects:
Agreements
Arbitration
Bilateral investment treaties
Business administration
Business and Management
Business Strategy/Leadership
Capital costs
Financial performance
Foreign direct investment
Foreign direct investments
Foreign investment
Foreign investments
Government
Host country
International agreements
International Business
International law
International trade
Investors
Management
Multinational corporations
Multinational enterprises
Organization
Petroleum
Political risk
Political science
Politics
Property rights
Public ownership
Studies
U.S.A
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Summary:We examine whether the presence of International Investment Agreements (IIAs), negotiated among countries for foreign investor protection, lowers political risk faced by multinational enterprises (MNEs). Drawing on research from international business, political science, and international law, we argue that IIAs increase expected future cash flows, and hence the value of foreign assets, by limiting the ability of host governments to make discriminatory policy changes. However, the need for IIA protection, and the ability to benefit from it, varies with firm characteristics. Using detailed transaction-level data for sale of petroleum assets in 45 countries, we find that MNEs pay significantly higher amounts for those protected by IIAs than similar but unprotected assets, an effect moderated by the firm's reserve size and state ownership.
ISSN:0047-2506
1478-6990
DOI:10.1057/jibs.2013.70