The impact of exogenous non-economic shocks on the global business environment: A cross-country analysis of the impact of september 11 th on muslim-populated countries

Mazhar U. Islam, Adam R. Fremeth, Alfred A. Marcus

Research output: Contribution to conferencePaperpeer-review

Abstract

The risks of operating multinational firms have generally been studied from the perspective of those factors that can be considered endogenous to a particular country or the economic system as a whole. However, global markets are not only subject to these endogenous factors, such as the liability of foreignness or the risk of expropriation, but also a series of exogenous factors, which generally come in the form of a non-economic shock, for instance the rise of global terrorist networks. Unlike the more traditional costs of operating abroad, the impact of non-economic shocks is more complex to recognize and can leave managers with information that lacks clarity or usefulness. When the source of these non-economic shocks can be isolated to an individual or group the event can have a socio-cultural spillover that harms foreign markets which may be linked with that source but had no role in the event's occurrence. Using the terrorist attacks of September 11th 2001 as the empirical context and a novel econometric approach, we find that the costs of operating in Muslim-populated countries increase above and beyond what can be explained by those endogenous economic, political, and social factors. Consistent with our theoretical model, our results suggest that a differential increase in costs of operations in particular foreign markets following an exogenous non-economic shock can be attributed to a manager's likelihood to categorize countries together and link them with the source of the shock.

Original languageEnglish (US)
StatePublished - Dec 1 2008
Event68th Annual Meeting of the Academy of Management, AOM 2008 - Anaheim, CA, United States
Duration: Aug 8 2008Aug 13 2008

Other

Other68th Annual Meeting of the Academy of Management, AOM 2008
CountryUnited States
CityAnaheim, CA
Period8/8/088/13/08

Keywords

  • Emerging economies
  • Global business environment
  • Political risk

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