Higher Highs and Lower Lows: Political Connections, Geopolitical Risk, and International Investment

The revolving door is a key mechanism through which firms build political connections. While research suggests these connections can facilitate international expansion, findings remain mixed, with some studies highlighting benefits and others suggesting neutral or negative effects. We argue that these divergent outcomes stem from an overlooked factor: bilateral geopolitical relations between the home and host country. Political connections amplify the effects of these relations, helping firms expand in allied nations while discouraging investment in adversarial states. To test this argument, we focus on foreign policy revolvers—former government officials with foreign policy experience—who are uniquely positioned to shape firms’ international strategies. Analyzing the global investments of U.S. publicly listed firms, we find that foreign policy revolvers increase international investment, but their effect depends on bilateral political relations. They enhance expansion in politically friendly countries but deter investment in those with geopolitical tensions. We further show that this effect is distinct from country-specific political risk and is weaker for revolvers without foreign policy experience. These findings contribute to research on political connections, internationalization, and geopolitical risk by demonstrating that home-country ties influence firms’ global strategies in ways shaped by bilateral relations.