The liability of foreignness and operational security: evidence from emerging markets

Abstract

PurposeIn this research, we explore the adverse impact of foreign ownership on operational security, a critical operational implication of the liability of foreignness (LOF).Design/methodology/approachThe empirical analysis is based on a multi-country dataset from the World Bank Enterprises Survey, which contains detailed firm-level information from over 8,902 firms in 82 emerging market countries. We perform a series of robustness checks to further confirm our findings.FindingsWe find that a high ratio of foreign ownership is associated with an increased likelihood of security breaches and higher security costs. Our results also indicate that high levels of host countries’ institutional quality and firms’ local embeddedness can mitigate such vulnerability in operational security.Originality/valueThis study is one of the first to uncover the critical operational implication of the LOF, indicating that a high ratio of foreign ownership exposes firms to operational security challenges.