Unexpected Dilemmas: MNE Divestitures as Strategic Responses to Host-Country Anti-LGBTQ Legislation

We examine whether multinational enterprises (MNEs) strategically respond to changes in host-country social regulations, particularly legislation on controversial social issues that may appear unrelated to business operations. Using the context of anti-LGBTQ legislation, we argue that such regulations create strategic dilemmas for MNEs from countries with progressive LGBTQ values, compelling them to balance economic interests in the host country with social expectations in the home country. The anti-LGBTQ legislation heightens pressures from home-country pro-LGBTQ constituencies—such as employees, shareholders, NGOs, and regulators—leading to increased operational and reputational uncertainty that prompts some MNEs to reduce their commitments in affected host countries. We propose that MNEs headquartered in locations with more pro-LGBTQ policies, and thus facing stronger pro-LGBTQ pressures, are more likely to respond by divesting. Conversely, MNEs with substantial internal LGBTQ-supportive policies buffer themselves from scrutiny and are therefore less inclined to divest. Analyzing decisions of 513 U.S. MNEs operating across 143 countries from 2009 to 2021, we find support for these predictions through a quasi-experimental design. Our findings demonstrate that MNEs are more likely to divest from countries enacting new anti-LGBTQ legislation, especially when they are headquartered in locations with more pro-LGBTQ policies or lack firm-level LGBTQ-supportive policies. This study contributes to the international business and strategy literature.