The purpose of this study is to examine how foreign firms consider natural disaster risk in subsequent investment decisions in a host country and whether different location portfolios can serve to mitigate investment risk.
The author sample includes data on 437 Fortune Global 500 firms and their initial entry into Chinese provinces between 1955 and 2008.
Using a fixed effects logit model of discrete time event history analysis, results show that geographic proximity to same multinational corporation (MNC) subsidiaries and different MNC subsidiaries from the same home country mitigates the negative effect of natural disasters on MNC entry into an affected province, while geographic proximity to other MNC subsidiaries from different home countries does not.
The knowledge needed to respond to severe disasters appears to be highly context-specific and shared only between firms with a high degree of commonality and trust.
