Anticipation and foreign exit from conflict zones: A vulnerability framework

This chapter advances theory to explain how differences in firms’ ability to anticipate the outbreak of a violent conflict affect their foreign exit decisions. Drawing on the literature on firm vulnerability to exogenous shocks, the chapter explores how differences in anticipation affect whether a firm exits the host country, and if so, the timing (early/late) and mode (partial/whole) of its exit. Our propositions are derived from a microeconomic model where the firm is assumed to be a rational actor engaging in decision-making under uncertainty, in which the exit strategy depends on the trade-off between the costs of exit and staying in response to an exogenous political shock. In this model, we explore the implications of bounded rationality together with optimistic and pessimistic biases on the firm’s decision-making. We find that anticipation of a violent conflict is positively associated with exit from the host country and that exit is more likely to be early and partial.