Power Transitions in the Host Country and the Survival of Subsidiaries in Infrastructure Industries

Mauro Guillén, Management Department, The Wharton School; Esteban García-Canal, Universidad de Oviedo; and Laura Fernández‐Méndez, Universidad Pontificia Comillas

Global Strategy Journal: Volume 9, Issue 2, May 2019

Abstract: We argue that for firms competing in infrastructure industries, a change in the government that granted the permission to invest in the host country increases the likelihood of divestment of foreign subsidiaries. The logic surrounding this behavior lies in the fact that these firms may develop cooperative relationships with the granting government and that a power transition depreciates the relational capital accumulated and the effectiveness of the commitments achieved. Building on the literature on relational governance and the relational view of corporate political actions, we argue that this effect increases with host country governmental discretion and with investment longevity. An empirical analysis of the survival of foreign investments made by Spanish firms from infrastructure industries during the period 1986 to 2008 provides support for our hypotheses.

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