Does politician turnover affect foreign subsidiary performance? Evidence in China

Abstract

While research has acknowledged the importance of political risks in affecting multinational companies’ behavior and performance outcomes, the roles of political agents in this process have largely been ignored. This study explores one important dimension of political risks caused by politician turnover at the sub-national level and examines its influence on the performance of foreign subsidiaries. We contend that policy uncertainty arising from politician turnover adversely affects the performance of foreign subsidiaries. We further develop a multi-level framework identifying contingent factors at event (i.e., internal promotion), firm (i.e., international joint venture), and environment (i.e., market intermediary development) levels that moderate the relationship between politician turnover and MNC performance. Analyses of foreign subsidiaries located in 310 Chinese cities from 1998 to 2007 largely support our thesis that politician turnover dampens the performance of foreign subsidiaries. This negative performance impact is then alleviated for internal promotions, international joint ventures, and firms located in regions with a high degree of market intermediary development. Our study opens a new avenue for examining the role of host-country political agents in affecting MNC performance.