Political Risk in Catalonia: An Explorative Case Study of Political Risk, Political Risk Perception and the Firm Exodus That Occurred in Relation to the 2017 Unconstitutional Secession Challenge in Catalonia

Abstract

This thesis presents an exploratory case study that examines political risk, firm exodus and political risk perception in Catalonia following the 2017 unconstitutional referendum. On October 1st 2017 the Catalan parliament held a regional referendum to determine Catalonia’s right to independence. This referendum had prior to its execution been deemed unconstitutional by Spanish courts and was thus illegal. Catalan separatists announced that 90% had voted in favor of independence, however only 42% of the Catalan people cast their votes, with many boycotting the referendum due to its illegality. This thesis examines how this political conflict translated into risk for domestic companies based in Catalonia. It finds that in the year following the referendum more than 3800 firms transferred their registered headquarters away from Catalonia and into other Spanish Autonomous Communities. Thus, with a basis in political risk theory this thesis examines the risk firms faced, why this let to such an exodus of firms and whether the political affiliation to the independence movement biased the political risk perception of Catalan business managers. This is a novel application of political risk theory, as the body of literature has neglected that political risk can occur domestically, instead focusing on how political risk occur when MNCs internationalize into new markets. This thesis finds that the main risks that domestic firms were confronted with were, economic downturn, exclusion of the EU and boycotts. This thesis furthermore finds that two sectors, namely the financial sector and agricultural sector were specifically affected by political risk. This thesis furthermore extends Kobrin’s typology of subjective uncertainty, to account for the fact that this term in applied to a domestic setting. Kobrin argues that political risk perception of managers is guided by the information available, previous experience and cognitive processes. This thesis accept Kobrin’s assumptions but proposes an extension. Thus a theoretical proposition is presented to Kobrin’s typology, by hypothesizing that the political affiliation to the independence movement biased managers’ perception of political risk. Through qualitative research, namely interviews with key stakeholders within key Catalan business associations, this hypothesis is examined. It is found that the political affiliation to the independence process strongly biases the perception of the political risk, this is dubbed the political affiliation effect. Thus, this thesis demonstrates a previous lack of attention on political risks in a domestic setting and provides new knowledge of how the political affiliations of managers play a significant role in political risk perception. As secessionist movements are on the rise, it is the hope that research within political risk theory will build on these findings and dedicate greater attention to political risk in domestic environments.