Title: The effects of home country political risk and uncertainty on the financial performance of firms

Authors: Glaucia Grellmann; Mohamed Amal; Sílvio Luís De Vasconcellos

Addresses: Regional University of Blumenau - FURB, Blumenau, State of Santa Catarina, Brazil; Universidade do Vale do Itajaí - UNIVALI, Biguaçu, Santa Catarina, Brazil ' Regional University of Blumenau - FURB, Blumenau, State of Santa Catarina, Brazil; Universidade do Vale do Itajaí - UNIVALI, Biguaçu, Santa Catarina, Brazil ' Escola Superior de Propaganda e Marketing - ESPM, São Paulo, SP, Brazil

Abstract: We evaluate the effects of home country political risk and uncertainty on MNCs' financial performance, examining firms from countries with different development levels. We also test the differences in the impulse-response function, considering firms' technology intensity levels. Examining 1415 firms in ten different sectors of the economy and from 37 countries from 2007 to 2019, we test a Panel Vector Autoregressive (PVAR) model. The results show that responses to political risk and uncertainty shocks depend on the type of economy in which the firm is located and the technology intensity of the industry sector. We contribute to the literature by empirically distinguishing between political risk and uncertainty. We advance the institutional country-of-origin perspective by showing that while political risk can be managed from a stable, secure and robust institutional context, the negative effects of uncertainty on MNC performance cannot be mitigated through a strong and highly developed institutional framework.

Keywords: political risk; uncertainty; financial performance.

DOI: 10.1504/EJIM.2022.124908

European Journal of International Management, 2022 Vol.18 No.2/3, pp.231 - 266

Received: 31 Jul 2020
Accepted: 12 Mar 2021
Published online: 15 Aug 2022 *

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