Intergroup Conflicts and Investment Decisions in High-risk Environments

We examine how firms enter countries with high conflict risk. We develop new measures of within-country intergroup conflict risk derived from global media articles (2003-2020), and we find that although globally experienced firms avoid unfamiliar conflict environments, they exhibit a preference towards high-risk environments with which they have direct (or adjacent) experiences with the same (or similar) types of conflict actors present. Furthermore, when entering a new high-risk country, firms commit to more capital investment and job creation if they can leverage previous experiences with conflict management. Our results suggest that firms may strategically expand to diversify knowledge about different conflict actors, and that the management of specific conflict actors might be an important dimension of competitive differentiation for firms operating in high-risk environments.