Proactive management of political risk and corporate performance: The case of Spanish multinational enterprises

Abstract

The present study analyzes the relationship between the political risk assumed by Spanish multinational enterprises in their internationalization strategies and their performance over a five-year period, from 2000 to 2005. Significant evidence is obtained of a positive and simultaneous relationship between political risk and performance through the use of simultaneous equations applied to a sample of 164 firms. These results are consistent with the premises of the Prospect Theory and with the traditional financial and economic theory grounded in risk aversion. They also explain the proactive use of political risk, to the extent that greater risk results in greater performance, which in turn contributes the amount of resources that are needed to undertake investments in countries with greater risk.