How geopolitical risk affect firms’ internationalization performance: Evidence from China

Abstract

Geopolitical risks (GPR) arising from wars, terrorist acts and bilateral tensions. It has aroused global attention recently, especially as the COVID-19 pandemic outbreak has further disrupted normal bilateral trade exchanges. However, this argument is still too general to capture the micro impact of geopolitical risks on internationalization in developing countries. This study examines the impact of GPR on firms' internationalization performance in China. Using Chinese A-share manufacturing listed firms from 2008 to 2019, this study investigates the relationship between GPR and firms' internationalization performance. The main findings are presented as follows. First, GPR has a significantly negative effect on firms' internationalization performance. After I conduct a series of robustness tests, my findings remain valid. Second, GPR have a suppressive effect on firms' internationalization performance mainly through reducing legitimacy and investment freedom. Third, the interaction terms of product diversification, technological diversification and regional diversification with GPR have different statistical significance, and they interact with GPR to affect firms' internationalization performance. In addition, GPR have a more significant inhibitory effect on the firms' internationalization performance in developing countries along the “the Belt and Road” and joint ventures investing. Therefore, this study contributes to a better understanding of GPR and firms’ internationalization.