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Terrorism-induced uncertainty and firm R&D investment: A real options view

Author

Listed:
  • Daitian Li

    (University of Electronic Science and Technology of China)

  • Tony W Tong

    (University of Colorado)

  • Yangao Xiao

    (University of Electronic Science and Technology of China)

  • Feida Zhang

    (University of Queensland)

Abstract

How terrorism affects firms’ investment decisions is gaining increasing attention globally and represents a frontier topic in international business. Although extant research has shown that terrorism can reduce aggregate investment levels, little attention has been paid to the impact of terrorism on firms’ R&D in a global context. Drawing on real options theory, we argue that terrorism will lead firms to reduce their R&D investment because terrorism-induced uncertainty increases the value of the deferral option in R&D. However, strong national institutions, including strong patent rights protection and low expropriation hazards, will mitigate firms’ disincentive to invest in R&D stemming from uncertainty. Further, multinational firms, larger firms, as well as firms with greater cash flow will be less sensitive to uncertainty in their R&D decisions. Our hypotheses are supported by a battery of tests, including the use of a quasi-experiment, based on firm-level panel data from 48 countries.

Suggested Citation

  • Daitian Li & Tony W Tong & Yangao Xiao & Feida Zhang, 2022. "Terrorism-induced uncertainty and firm R&D investment: A real options view," Journal of International Business Studies, Palgrave Macmillan;Academy of International Business, vol. 53(2), pages 255-267, March.
    • Handle: RePEc:pal:jintbs:v:53:y:2022:i:2:d:10.1057_s41267-021-00470-x
    DOI: 10.1057/s41267-021-00470-x
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