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

Daitian Li (), Tony W Tong (), Yangao Xiao () and Feida Zhang ()
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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

Journal of International Business Studies, 2022, vol. 53, issue 2, No 3, 255-267

Abstract: 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.

Keywords: terrorism; uncertainty; R&D investment; real options; irreversibility; country institutions (search for similar items in EconPapers)
Date: 2022
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Citations: View citations in EconPapers (5)

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DOI: 10.1057/s41267-021-00470-x

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