Who is to Blame? An Analysis of Variations in MNE Responses to Violent Conflicts

Abstract

This study investigates whether and how multinational enterprises (MNEs) respond to violent conflicts. We employ institutional theory to argue that the response of MNEs to violent conflicts is a function of the level of involvement of both formal (host country government) and informal institutions (e.g., armed groups) in violent conflicts as well as the magnitude of violent conflicts. The impact of violent conflicts magnitude and the associated actors on MNE responses are explored using 2,494 firms operating in 12 conflict-affected countries from 1991 to 2017. We find that conflict involvement of both formal and informal institutions encourages MNEs to broaden the operational scope to cover a broader range of value-chain activities that could otherwise potentially increase their exposure to threats. This effect, however, may be reversed depending on the magnitude of actual threats posed by the violent conflicts. To be specific, when facing a high level of incompatibility in institutional demands articulated in the form of severe violent conflicts, MNEs may narrow the operational scope of their foreign operations to reduce their chances of unintentional involvement or/and association with informal institutions engaged in conflicts.