Journal of International Business Studies

, Volume 45, Issue 6, pp 649–669

Institutions sans frontières: International agreements and foreign investment

Authors

    • ESSEC Business School
  • Robert J Weiner
    • George Washington University
Article

DOI: 10.1057/jibs.2013.70

Cite this article as:
Jandhyala, S. & Weiner, R. J Int Bus Stud (2014) 45: 649. doi:10.1057/jibs.2013.70

Abstract

We examine whether the presence of International Investment Agreements (IIAs), negotiated among countries for foreign investor protection, lowers political risk faced by multinational enterprises (MNEs). Drawing on research from international business, political science, and international law, we argue that IIAs increase expected future cash flows, and hence the value of foreign assets, by limiting the ability of host governments to make discriminatory policy changes. However, the need for IIA protection, and the ability to benefit from it, varies with firm characteristics. Using detailed transaction-level data for sale of petroleum assets in 45 countries, we find that MNEs pay significantly higher amounts for those protected by IIAs than similar but unprotected assets, an effect moderated by the firm’s reserve size and state ownership.

Keywords

global institutionspolitical riskinternational investment agreementsforeign direct investmentpetroleum

Copyright information

© Academy of International Business 2014