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The impact of political risk on FDI exit decisions
Do political risks drive exit decisions by multinational companies (MNC)? What mechanisms can
protect a multinational subsidiary in a host country that is characterized by weak institutions and
high political risks? Using multinational plant-level data for Russia in the period 2000-2016 and
applying the Cox proportional hazard model, we find significant effects from elevated hostcountry
political risk when we compare the year of entry to the year of exit. MNCs are particularly
sensitive to problems associated with law, order, and social conditions in Russia and the
presence of the military in politics in the home country. Institutional similarity does not reduce
the hazard of exits, and MNCs from high-risk countries exit less when home-country risk increases.
Subsidiaries from countries that have imposed sanctions on Russia are less likely to exit,
though sanctions interact with host-country risks, making them more severe. Being large and
being part of a greenfield project help subsidiaries to build resistance against host-country political
risks. These findings provide empirical evidence that support our conclusions regarding
foreign direct investment volatility in countries with high risk.