Inter-state Political Risks, Types of Corporate Political Ties and International Joint Ventures

Abstract

Inter-state political conflicts are an important source of political risks deterring firms’ cross-border collaborations. We propose how two types of business leaders’ domestic political ties, family ties and social ties, can have opposing effects on firms’ capacity to cope with inter-state political risks, in a context where both types of ties are salient and have distinct social meanings. While both can help the firms navigate regulatory uncertainties at home, family ties can tarnish the firms’ legitimacy in the host country by identifying the firms with the state, outweighing their benefits. We find empirical support in Korean business groups’ entry into China through joint ventures during 1990-2005. Our study contributes to the literatures on political risks and corporate political ties by disentangling ties of different nature.