Geopolitical risk and foreign subsidiary performance of emerging market multinationals

Abstract

In recent years, enterprises have faced increasing uncertainty due to rising geopolitical risks. This paper examines the impact of geopolitical risk (GPR) in host countries on the performance of foreign subsidiaries of A-share-listed Chinese multinational enterprises (MNEs) from 2003 to 2020. The results show that the GPR of host countries negatively affects the foreign subsidiary performance of Chinese MNEs. The deteriorated local business environment acts as a channel for this negative relationship. Moreover, such a negative relationship is mitigated for listed firms with more international experience and senior executives with an overseas background, when the foreign subsidiaries do not operate in sensitive industries or when there is a better institutional environment in the host countries. This study extends the literature on how external uncertainty affects the performance of foreign subsidiaries of emerging market multinational enterprises. It also sheds light on the internationalization of firms through the management of international uncertainty.