Terror Risk and Infrastructure Projects: The Moderating Role of Home Experience and Institutions

Abstract

This paper investigates the impact of terror risk on the performance of private participation infrastructure projects. Drawing on internalization theory, we hypothesize that terror risk has a negative relationship with infrastructure project success. Host state accountability, we argue, produces higher indirect costs of managing terror risk, which in turn reduces private participation infrastructure project investor confidence and, as a consequence, reinforces the negative relationship between terror risk and projects ´ success probability. Conversely, investor’s experience with terror risk increases investor confidence and hence partially mitigates the negative consequences of terror risk which hamper projects´ success. Hence, the impact of terrorism is weakened for projects led by firms from similarly high terror risk countries. We test our hypotheses using a sample of 5,083 projects in 132 countries from 2002 to 2017. Our study contributes to the growing evidence in the literature about the indirect and direct risks of major disasters on foreign business ventures, complements research on the transferability of country- specific managerial experience, and provides an interesting caveat to the generally accepted role of institutional quality for the performance of non-commercial business investments.