Finance and Accounting Brown Bag Seminar - Margaret Fong (Montreal) "Geopolitical Risks and Cross-Border Collaboration"

Abstract:

In the context of increasing geopolitical hostilities and ideological conflicts, we investigate the effect of geopolitical affinity—similarity of national interests between countries in global affairs—on firm-level cross-border collaboration. We argue that geopolitical affinity affects how firms anticipate the reliability of partners and institutions in safeguarding shared value creation. As geopolitical tensions rise, governments and local stakeholders become less likely to credibly commit to honoring agreements and more likely to expropriate/misappropriate intellectual property. Antagonism between a firm’s home country and a foreign country fosters animosity between their citizens, undermining trust and leading to a reduction in collaboration. Furthermore, we show that the interplay between the level of geopolitical affinity and the propensity for sudden and unpredictable shifts in that affinity—i.e., volatility in geopolitical affinity—shapes overall uncertainty and gives rise to nuanced collaboration patterns among multinational firms. Analyzing 1,685 US public firms and their ties across 25 countries from 2000 to 2022, we find support for our hypotheses.