Abstract
Although institutional and cultural distance evolve slowly, historical home-host linkages can swiftly wear away due to political shocks. We investigate how shocks related to political instability, i.e. war and regime changes, affect the importance of colonial ties for location choices of multinational enterprises and find that wars and regime changes eliminate the positive effect of colonial relationships on the probability of investment. This implies that multinationals originating from a country with historical ties to the host country face incentives to prevent political shocks, whereas MNEs from countries without such home-host ties might actually benefit from threats to the status-quo.
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