Journal of World Business 55 (2020) 101129

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Journal of World Business

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Safety risk and international investment decisions T

a, b b
Kaitlyn DeGhetto *, Bruce T. Lamont , R. Michael Holmes Jr.
a
University of Dayton, 300 College Park, Dayton, OH, 45469, USA
b
College of Business, Florida State University, 821 Academic Way, Tallahassee, FL, 32306, USA

ARTICLE INFO ABSTRACT

Keywords: We identify and demonstrate the merit of a novel institutional factor, safety risk, which likely affects multi­
Safety risk national corporations’ (MNCs’) international investment decisions. Safety risk refers to the extent to which se­
Institutions curity and physical well-being are endangered due to normalized aggression and criminality in society. Despite
Foreign direct investment concerns from executives and policymakers, safety risk has attracted little research attention. We validate a
Multinational corporations
safety risk measure and evaluate the construct’s effect on MNCs’ investments. The findings indicate that coun­
International investments
Country risk
tries’ safety risk deters MNCs from investing. Further, in post hoc analyses, firms’ prior experiences with safety
risk and countries’ private security investments moderated this relationship.

“When making location choices we primarily consider stability, safety, safety. Safety risk refers to the extent to which individuals’ security and
and friendliness to business. We are not going to put our people at risk.” – physical well-being are endangered due to the normalization of aggression
COO, US-based multinational corporation and criminality (i.e., personal and property crime) by other individuals living
in a country. This construct is important to examine because MNC ex­
ecutives and expatriates increasingly suggest that personal safety and
1. Introduction
security are significant concerns when they make international invest­
ment decisions (e.g., Bloom, 2019; Bock, 2019; Cameron, 2011). Unlike
Countries seek to attract foreign direct investment from multi­
the general public weighing the implications of personal travel or in­
national corporations (MNCs) to boost their economies and increase
vestment, executives’ responsibilities go beyond their own well-being.
innovation. Likewise, MNCs desire to pursue investments in countries
They must consider the potential personal harm to other home country
that will foster their growth and advancement. Thus, an important as­
leaders visiting the country as well as the safety of their local workers
pect of MNCs’ international investment decisions is where to invest (e.g.,
inside of the country. Thus, safety risk likely influences MNCs’ inter­
Belderbos, Du, & Goerzen, 2017; Buckley, Chen, Clegg, & Voss, 2020;
national investment decisions (i.e., first time, continuing, and expan­
Dunning, 1979; Kim & Aguilera, 2016; Maggioni, Santangelo, &
sionary investments) in important ways.
Koymen-Ozer, 2019). Choosing to invest in countries requires monetary
Given the growing concerns, several public and private organiza­
and time commitments which can be difficult to recover if the invest­
tions now evaluate the danger of visiting or living in certain locations
ments go poorly. Due to the importance of these investments to MNCs
(e.g., Institute for Economics and Peace’s Global Peace Index,
and host countries, scholars increasingly focus on how countries’ in­
Economist Intelligence Unit’s Safe Cities Index, the World Economic
stitutional environments affect MNCs’ choices. This research has shown
Forum’s Travel and Tourism Competitiveness Report). Likewise, con­
that institutional risk factors, including corruption, unilateral power
sulting firms (e.g., London’s Fitch Solutions Group via BMI Research)
structures, and weak rule of law, can undermine government’s ability to
sell crime and security reports about the dangers of different countries,
perform some of its core functions, notably protecting property rights
and MNCs spend billions on alternative institutional structures, such as
and overseeing public goods, thereby discouraging international in­
private security, to manage safety risk (Provost, 2017). Thus, safety risk
vestments from MNCs (Cavusgil, Deligonul, Ghauri, Bamiatzi, Park, &
is an important concern for executives, is costly for countries and firms,
Mellahi, 2020; Henisz, 2000; Holmes, Zahra, Hoskisson, DeGhetto, &
and warrants the attention of researchers.
Sutton, 2016; Peng, Wang, & Jiang, 2008).
In response, our research contributes by introducing a novel in­
Scholars have paid less attention, however, to another critical aspect
stitutional factor, safety risk. This includes developing a valid measure
of the institutional environment: protection of the populace’s physical
of safety risk and empirically evaluating its effect on MNCs’

⁎
Corresponding author.
E-mail addresses: kdeghetto1@udayton.edu (K. DeGhetto), blamont@business.fsu.edu (B.T. Lamont), mholmes@business.fsu.edu (R.M. Holmes).

https://doi.org/10.1016/j.jwb.2020.101129
Received 5 June 2018; Received in revised form 28 June 2020; Accepted 29 June 2020
1090-9516/ © 2020 Elsevier Inc. All rights reserved.
K. DeGhetto, et al.
international investments. Most of the institutional risk literature fo­
cuses on the failure of government policies and legal institutions (e.g.,
to oversee property rights, economic transactions, and public goods).
However, safety risk results from the failure of different institutions,
including informal norms that discourage aggression and violence to­
ward others and their property and formal institutions that provide
security. Thus, understanding the nature and effects of safety risk ad­
vances institution-based perspectives in international business.
2. The safety risk construct
Institutional theory explains how the institutional environment, or
context, affects firms’ behaviors (Peng et al., 2008). Institutions refer to
the informal norms and formal rules in a country (Holmes, Miller, Hitt,
& Salmador, 2013). Much of the literature on MNCs’ international in­
vestment decisions has focused on institutional policy risk, which refers
to factors that reduce government effectiveness and produce ambiguity,
typically via corruption, unilateral power structures, weak rule of law,
and so on. In addition, scholars have investigated the challenges that
arise when informal cultural differences (e.g., individualism vs. col­
lectivism) exist between investing and recipient nations (Kostova, 1999;
Popli, Akbar, Kumar, & Gaur, 2016). In general, this stream of research
concludes that institutional risk and unfamiliar institutions discourage
MNCs from investing while creating costly obstacles for those that do
invest (Cavusgil et al., 2020; Demirbag, Glaister, & Tatoglu, 2007;
North, 1990).
Safety risk has received less attention than other aspects of the in­
stitutional environment. Safety risk relates to widespread, in­
stitutionalized patterns of personal (e.g., assault, robbery, rape, homi­
cide, kidnapping) and property (e.g., theft, burglary, arson) crimes that
individuals enact against others, including business professionals.
Those who perpetrate these behaviors sometimes organize in groups,
such as drug cartels, but often act alone and without formal affiliation.
When countries have high safety risk, crime and aggression are taken
for granted and often persist over time, which can desensitize in­
dividuals to these behaviors and enable their normalization. In some
cases, violence is used to solve economic problems or conflicts. That is,
intimidation, kidnaping, use of weapons, or theft are mechanisms that
may enhance wealth and influence. When aggression is widely-prac­
ticed, engaging in these activities often allows the aggressors to develop
social networks and protection (e.g., street gangs), further improving
positions of power. Although these safety concerns may result in ca­
sualties, they can also result in more minor safety-related issues, such as
loss of property and threats, which can impede business, including the
ability to meet in public, travel freely, and recruit human capital.
Importantly, safety risk is related to but distinct from other types of
institutional risk, such as policy risk, which stems from the failure of
countries’ political and regulatory institutions. For instance, corruption
occurs when public officials use their power for personal benefit
(Judge, McNatt, & Xu, 2011), which can result in bribery demands from
legitimate firms. Likewise, the concentration of government power in
autocratic regimes with limited checks and balances (Henisz, 2000)
sometimes results in sudden and damaging changes to regulations that
affect firms. And, weak rule of law exists when government laws, reg­
ulations, and policies do not exist and/or are not enforced (Li & Filer,
2007; Sun, Peng, Lee, & Tan, 2015), thus making it difficult for firms to
uphold contracts, protect intellectual property, and trust the efficacy of
government institutions. Safety risk also is distinct from informal cul­
tural differences, which influence MNCs’ investment decisions by
creating uncertainty about consumer preferences, employee relations,
and other interactions, thereby hindering operational efficiency and
perceived legitimacy (e.g., Johanson & Vahlne, 1977; Kostova, 1999).
In this sense, safety risk has unique institutional sources and effects.
As opposed to government’s treatment of stakeholders or cross-country
differences, safety risk pertains to the actions citizens take against one
another. It arises from informal institutions which normalize
2
Journal of World Business 55 (2020) 101129
threatening behavior and from weak formal institutions which fail to
offer protection. Of course, the stakes of safety risk also differ. Whereas
the previously studied policy-related institutional risks enable ex­
propriation, inefficiency, and other problems that have financial con­
sequences (e.g., Habib & Zurawicki, 2002; Henisz, 2000; North, 1990),
safety risk warrants special consideration because it affects the poten­
tial for bodily harm and loss of life.
In addition, safety risk differs in important ways from other con­
structs, such as terrorism and violent conflict (also referred to as “war”;
Dai, Eden, & Beamish, 2017), which also address physical danger.
Terrorism is “use of violence by subnational groups to attain a political,
religious, or ideological objective through intimidation of a large audi­
ence” (Czinkota, Knight, Liesch, & Steen, 2010, p. 828; emphasis
added). Related research often focuses on specific events, such as 9/11
(e.g., Abadie & Gardeazabal, 2003; Enders, Sachsida, & Sandler, 2006).
Violent conflict is “the organized and sustained use of physical force…
(which) may include war, revolution, rebellion, insurgency, and sus­
tained campaigns of violence or terrorism, but not petty crime” (Oh &
Oetzel, 2017, p. 715; emphasis added). For instance, an index of armed
conflicts with at least 25 annual battle-related deaths (Uppsala Conflict
Data Program) is a common proxy used by researchers (Dai, Eden, &
Beamish, 2013, 2017; Oh & Oetzel, 2017; Witte, Burger, Ianchovichina,
& Pennings, 2017).
Thus, both of these constructs refer to specific, rare, and tragic
events that are planned and executed by organized groups (Czinkota
et al., 2010; Dai et al., 2013; Oetzel & Getz, 2012; Oh & Oetzel, 2017).
Terrorism and violent conflict typically occur in specific geographic
regions with a purpose of challenging the behaviors or ideologies of
other groups. And, often the government is involved, either as the ag­
gressor or the target. In contrast, safety risk is not episodic, geo­
graphically localized, or motivated by some higher end (e.g., a geopo­
litical goal). It permeates society, becoming part of the fabric of
everyday life, and often is directed by unorganized, private citizens
against one another. Although government may be involved in pun­
ishing the behavior (e.g., jail time), it typically does not hold a central
role as the victim or the perpetrator. Thus, safety risk is a distinct
construct that adds to institution-based perspectives, and as we hy­
pothesize below, likely affects MNCs’ investment decisions.
3. The effect of safety risk on MNCs’ international investment
decisions
When safety risk is high, the use of violence, force, and weapons
become more common and less socially unacceptable aspects of daily
life, both among private individuals and organized groups (e.g., drug
cartels, mafia). Because such norms are more widely practiced and
culturally embedded, safety risk tends to last for a sustained period of
time, making long-term yet unpredictable safety-related demands on
MNCs that are difficult for executives to predict and manage. When
safety risk is present, executives are unsure about the future financial
returns of foreign investments in addition to the protection of their
employees, assets, and legitimacy. For example, firms often cite human
capital as their most valuable asset. Thus, executives may hesitate to
assign or employ individuals in unsafe regions where their well-being is
at risk. They also may fear that conforming or associating with poor
institutional norms that fail to discourage violence and to provide se­
curity (Glynn & Abzug, 2002; Zucker, 1987) will hurt their global le­
gitimacy (Agbiboa, 2012; Spencer & Gomez, 2011). If MNCs operate
and profit in dangerous countries, for example, stakeholders may per­
ceive that the MNCs are ignoring, condoning, or benefiting from dan­
gerous activities (Luiz & Stewart, 2014).
Considering the potential for physical harm to themselves, their
employees, and the firm’s assets, as well as the potential illegitimacy
created, we posit that safety risk has a negative effect on MNCs’ in­
ternational investments (Cameron, 2011; Rettberg, 2004; USAID, 2017;
World Bank, 2004). When countries are dangerous and property is not
K. DeGhetto, et al.
secure, the ability to foster long-term growth and generate sustained
profits may be unclear. Because MNC executives often prefer to mini­
mize their exposure to unknowable circumstances in host nations (e.g.,
Cavusgil et al., 2020; Demirbag et al., 2007), they are less likely to
choose high safety risk countries for investment, despite other location
benefits that may be present (e.g., raw materials, government in­
centives, favorable wage rates). Formally stated:
Hypothesis. Safety risk is negatively related to the likelihood that an MNC
will invest in a given country.
4. Methods
4.1. Development of safety risk measure
Because we are introducing country safety risk as a new construct,
developing a valid measure is a primary goal. With construct validity,
the main objective is to demonstrate that the measure’s scores reflect
the intended construct, in this case safety risk (Hinkin, 1998). To do so,
we assessed content validity, factor structure, reliability, convergent
validity, and discriminant validity (Anderson & Gerbing, 1991;
Colquitt, Sabey, Rodell, & Hill, 2019; Hinkin, 1995, 1998; Schwab,
1980). Importantly, to identify items that reflect safety risk and assess
content validity, we followed the approach established and developed
by Anderson and Gerbing (1991) and Colquitt et al. (2019).
We began by searching the Bloomberg Businessweek, Wall Street
Journal, and Nexis Uni archives for popular press articles related to
safety risk and firms’ investment decisions. This helped us to refine the
definition so that it adequately represented our conceptualization of the
construct as well as managers’ concerns. Guided by our definition, and
in an effort to better understand which items may reflect our and re­
lated constructs, we reviewed relevant academic literature (Miron-
Spektor, Ingram, Keller, Smith, & Lewis, 2018). For example, we con­
ducted keyword searches (e.g., safety, violence, aggression, crime, well-
being) in high-quality journals that publish international business re­
search. Although our searches did not find that safety risk had been
studied, we found several articles (as discussed earlier) on event-based
disruptions, such as violent conflict (e.g., Chen, 2017; Oh & Oetzel,
2017) and terrorism (e.g., Czinkota et al., 2010). We also found studies
on rule of law, which can deter violence (Kaufmann et al., 2010) and
promote fair judicial processes, contract enforcement, and intellectual
property rights protection (e.g., Li & Filer, 2007; Prud’homme, 2019;
Sun et al., 2015).
After reviewing academic articles, we searched for related indexes
and rankings published by the public and private sectors, including
Gallup surveys, the Global Peace Index (Institute for Economics and
Peace), and the Travel and Tourism Competitiveness Report (World
Economic Forum), among other resources. Although none of these in­
dexes reflect our conceptualization of safety risk directly, they contain
related items and concepts.
In sum, this deductive process (e.g., Hinkin, 1995; Miron-Spektor
et al., 2018) allowed us to 1) better understand safety-related factors
that are important to business professionals, 2) identify constructs that
might be similar to safety risk, 3) identify established definitions of
these constructs, and 4) identify items that might reflect these related
constructs (#2) and safety risk. Specifically, we identified terrorism,
violent conflict, and rule of law as constructs that are related to safety
risk, and thus, warrant evaluation to ensure they are distinct from
safety risk.
With these four constructs in mind, we sought to establish content
validity with a sorting task wherein subject matter experts are provided
with construct definitions and asked to assign various items to the de­
finitions that the items most closely reflect (Anderson & Gerbing, 1991;
Colquitt et al., 2019). Items were presented randomly, and participants
could select “relates to none of these.” In total, 32 items representing
the four constructs were included.
3
Journal of World Business 55 (2020) 101129
To be comprehensive, we included all 22 items from the Global
Peace Index (GPI). This index is developed by the Institute for
Economics and Peace (IEP), an independent, nonprofit organization. It
is relevant to safety risk because it ranks countries on their level of
peace, which is the absence of physical violence in general. It also is
relevant to this study because it includes items associated with ter­
rorism (e.g., terrorist activity), violent conflict (e.g., armed conflicts
between government and another group with 25 or more battle-related
deaths), and rule of law (e.g., police presence). Along these lines, we
also included three items thought to reflect rule of law (see Worldwide
Governance Indicators), such as protection of property rights, and two
thought to reflect violent conflict (e.g., Oh & Oetzel, 2017) that are not
in the GPI. Finally, we included the four items in the “safety and se­
curity” pillar of the World Economic Forum’s Travel and Tourism
Competitiveness Report (i.e., traffic accidents, business costs of crime
and violence, business costs of terrorism, reliability of police services)
and one Gallup item which captures if individuals in various countries
feel safe walking alone at night.
To refine the content validity assessment and ensure none of the
descriptions were unclear, we conducted a smaller pilot study with 11
academics. Although the participants did not indicate that item de­
scriptions were unclear, six items failed to receive clear support for any
of the provided definitions and were removed from subsequent ex­
amination. After removing the six items, 37 management faculty
members familiar with institutional theory and international invest­
ment completed the content validity assessment. For both the pilot
sample (Study 1) and this sample (Study 2), we calculated the pro­
portion of substantive agreement or definitional correspondence (psa),
which is “the degree to which a scale’s items correspond to the con­
struct’s definition” (Colquitt et al., 2019, p. 1243). We also calculated
the substantive validity coefficient or definitional distinctiveness (csv),
which is “the degree to which a scale’s items correspond more to the
construct’s definition (in this case safety risk) than to definitions of
other orbiting constructs (in this case terrorism, violent conflict, and
rule of law)” (Colquitt et al., 2019, p. 1243). With these calculated
statistics, we used Colquitt et al.’s evaluation criteria (2019, Table 5) to
determine which items reflect safety risk and the other constructs.
Specifically, we retained items with psa and/or csv statistics in the
moderate or higher ranges. Moreover, after assessing the correlations
between the included constructs, we used the criteria for the “stronger
average correlation” provided by Colquitt et al. (2019, Table 5).
From the GPI item list, participants indicated that 1) level of per­
ceived criminality, 2) number of homicides, 3) level of violent crime,
and 4) ease of access to small arms and light weapons reflect safety risk
(see Table 1). Thus, the average of these four items served as the safety
risk measure. These items are from the same source (IEP), are on the
same scale (5-point scale), cover multiple years (annually from 2008),
and cover a comprehensive list of countries (162 in 2013). They also
include both subjective (i.e., perceptions of criminality) and objective
(i.e., number of homicides per 100,000 people) indicators. In addition
to the four GPI items, participants indicated that the Gallup item “safe
walking alone at night” reflects a possible fifth indicator of safety risk.
This single item, which is available only for a subsample of countries
(i.e., 90 of our sample countries in 2009), and which we only had access
to for two of our sample years, was used to test for convergent validity.
All other items reflected the other constructs as expected (e.g., property
rights protection reflected rule of law, and number of internal and ex­
ternal armed conflicts fought reflected violent conflict) or did not re­
flect any of the constructs (e.g., number of refugees and exports of
major conventional weapons).
Next, we conducted a confirmatory factor analysis (CFA) using the
2010 sample year data. Loadings far-exceeded the commonly accepted
0.50 level (Fornell & Larcker, 1981). They ranged between 0.76 and
0.83. Further, the Scree plot and eigenvalue (eigenvalue = 2.5) con­
firmed that all safety risk items loaded on one factor as expected. Fi­
nally, Cronbach’s alpha (α = 0.87) indicated sufficient internal
K. DeGhetto, et al. Journal of World Business 55 (2020) 101129

Table 1
Content validity assessment results.
Perceived Interpretation Homicides Interpretation Violent crime Interpretation Access to small arms/light Interpretation
criminality weapons

Study 1 (n = 11)
psa 0.91 Very strong 0.91 Very strong 0.91 Very strong 0.55 Weak
csv 0.82 Very strong 0.82 Very strong 0.82 Very strong 0.36 Moderate
Other construct Rule of law (1) Rule of law (1) Violent conflict (1) Rule of law (2)
Study 2 (n = 37)
psa 0.62 Moderate 0.95 Very strong 0.86 Very strong 0.62 Moderate
csv 0.27 Moderate 0.89 Very strong 0.78 Very strong 0.54 Strong
Other construct Rule of law (13) Rule of law (2) Rule of law (3) Rule of law (3)
Total (n = 48)
psa 0.69 Moderate 0.94 Very strong 0.88 Very strong 0.60 Moderate
csv 0.40 Moderate 0.88 Very strong 0.81 Very strong 0.50 Strong
Other construct Rule of law (14) Rule of law (3) Rule of law (3) /violent conflict (3) Rule of law (5)

a. psa is the definitional correspondence – the number of participants who sorted the item to the construct divided by the total number of participants.
b. csv is the definitional distinctiveness – the difference between the number of participants who sorted the item to the construct and the maximum number of times
the item was assigned to another construct divided by the total number of participants.
c. “Other construct” is the construct other than safety risk that participants assigned the item to (i.e., the second most common construct), and the number in
parentheses is the number of times the item was assigned to the other construct.
d. Interpretation guidelines for “stronger average correlation” found in Colquitt et al. (2019) were used.

consistency reliability (Hinkin, 1998; Nunnally, 1978). To ensure the
year chosen (2010) did not affect the results, we also conducted a CFA
on the 2012 sample year data. All criteria were still met with no sig­
nificant changes.
To demonstrate convergent validity, correlations between measures
of the same or similar constructs should be “significantly different than
zero and sufficiently large” (Campbell & Fiske, 1959: 82; Hinkin, 1998;
Schwab, 2005). Thus, we evaluated the correlation between our mea­
sure of safety risk (noted above) and Gallup’s “safe walking alone at
night” item. Scores were reversed coded to help with interpretation. For
two of our sample years where we had access to the Gallup item (2009
and 2011), the correlations were significant (r = 0.57, p < 0.0001 and
r = 0.44, p < .0001, respectively), providing evidence of convergent
validity.
Finally, to demonstrate discriminant validity, it is necessary to show
that scores from the focal measure do not correlate with scores from a
distinct measure (Hinkin, 1998; Schwab, 2005). With 2010 data, we
assessed the correlation between safety risk and the size of a country’s
military, measured both as expenditures (r = 0.08, p = 0.31) and the
number of armed services personnel (r = −0.08, p = 0.32). Because
the safety risk measure captures potential harm to individuals’ physical
security and well-being by other individuals, it was expected that the
measure for military size would be dissimilar. The non-significant
correlations provide evidence of discriminant validity. We also eval­
uated the correlations with 2012 data to ensure the year chosen was not
affecting the results, and no significant changes emerged.
In sum, this process allowed us to empirically establish what safety
risk is, but also what it is not. For instance, participants indicated that
terrorist activity and political terror reflect terrorism, not safety risk.
They also indicated that all items relating to armed clashes and battle-
related deaths reflect violent conflict, not safety risk. And, participants
indicated that protection of property rights, fair judicial processes, and
effective contract enforcement reflect rule of law, but not safety risk.
Alternatively, they indicated that perceptions of criminality, homicides,
violent crime, and ease of access to small arms and light weapons reflect
safety risk, not the other constructs. We now describe the methods for
testing our hypothesis.
4.2. Sample
The sample covers the period 2008–2013 and contains U.S.-based
firms on the 2008 Fortune Global 500 list. The first sample year coin­
cides with the first year our safety risk data was available. U.S.-based
firms were used to minimize variance in home country factors which
could affect investment decisions. Firms were included if they had at
least one reported foreign subsidiary investment at the start of the
sample period. However, we excluded firms that focus on accessing raw
materials (e.g., mining) because they have limited choices of where to
invest. Our final unbalanced panel dataset included the investments of
96 U.S.-based firms in 123 countries. It included 66,956 firm-country-
year observations and 14,067 investment events.
4.3. Dependent variable
The dependent variable is MNC international investments, which
captures first time, continuing, and expansionary investments. We
collected data on all foreign subsidiary investments for the sampled
firms from 2008 to 2013. Data were obtained from the firms’ annual
reports; firms are required to report their significant subsidiary in­
vestments (see Cornell Law School, Legal Information Institute for the
SEC’s significant subsidiary conditions) in Exhibit 21. This variable was
coded 1 if the firm invested in a host country within a specific year and
0 otherwise (Buckley et al., 2020). Because our sample included large,
established MNCs, a minority of the investments were first time in­
vestments. As indicated by the post hoc analyses reported later, our
results were insensitive to the inclusion of new investments.
4.4. Independent variable
As previously discussed, the independent variable is safety risk, and
it was measured by taking the average of the scores for 1) level of
perceived criminality, 2) number of homicides (per 100,000 people), 3)
level of violent crime, and 4) ease of access to small arms and light
weapons by sample year for each sample country. Supporting our ar­
gument that safety risk is a relatively stable institutional factor, safety
risk correlations across sample years are high, ranging from 0.93 to
0.99. All items were obtained from the GPI, which is developed by the
IEP (as noted earlier). Specifically, we used the item-level data provided
to our research team directly from the IEP, which collects qualitative
and quantitative data from other organizations (e.g., United Nations,
International Institute for Strategic Studies, Economist Intelligence
Unit, Uppsala Conflict Data Program). Each reported item is normalized
by the IEP on a scale of 1–5, with higher scores relating to higher risk.
Countries with high safety risk in 2013 included Nigeria and
Guatemala, and countries with low safety risk included Japan and
Denmark.

4
K. DeGhetto, et al. Journal of World Business 55 (2020) 101129

Table 2a
Descriptive statistics and bivariate correlations, country variables.
Variable Mean S.D. 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16

1. MNC int’l 0.21 0.41 1

investment
2. Safety risk 2.80 0.95 −0.20 1
3. Security inv. 55.50 17.91 0.05 0.09 1
4. GDP (log) 4.50 1.82 0.44 −0.37 0.03 1
5. GDP growth 3.35 6.26 −0.09 0.18 −0.00 −0.13 1
6. Population 0.05 0.17 0.16 0.03 0.03 0.38 0.09 1
7. Labor costs 1.28 1.25 0.30 −0.69 0.04 0.57 −0.21 −0.11 1
8. Tax rate 0.25 0.08 0.07 0.25 0.20 0.16 0.05 0.14 −0.09 1
9. Inflation 6.11 6.29 −0.14 0.30 0.01 −0.14 0.05 0.04 −0.31 0.14 1
10. US FTA 0.14 0.35 0.09 0.05 0.03 0.04 −0.00 −0.07 0.11 0.02 −0.13 1
11. English 0.09 0.29 0.08 −0.02 0.10 0.03 0.02 −0.03 0.11 0.14 0.02 0.04 1
12. Geo. distance 8.66 3.32 −0.08 −0.10 −0.15 0.00 0.14 0.17 −0.09 0.00 0.09 −0.26 0.07 1
13 Corruption 0.05 1.02 −0.32 0.72 −0.23 −0.45 0.20 0.09 −0.82 0.10 0.39 −0.14 −0.13 0.08 1
14. Form of gov. 4.97 4.49 −0.27 0.33 −0.19 −0.29 0.23 0.09 −0.42 0.06 0.29 −0.09 −0.07 0.35 0.58 1
15. Rule of law 0.04 0.99 −0.33 0.79 −0.14 −0.49 0.23 0.06 −0.81 0.16 0.43 −0.10 −0.12 0.04 0.96 0.61 1
16. Conflict 1.92 0.95 0.08 −0.04 −0.10 0.16 −0.09 0.15 0.10 −0.01 −0.05 −0.12 −0.02 0.02 −0.06 −0.12 −0.12 1
17. Terrorism 1.68 0.93 −0.02 0.36 −0.24 0.16 0.08 0.33 −0.25 0.16 0.18 −0.10 0.02 0.17 0.33 0.30 0.33 0.37

4.5. Control variables
Several country- and firm-level controls were included when testing
the hypothesis. Using World Bank data, we controlled for gross do­
mestic product (GDP; billions of dollars, natural log), population (in
billions), GDP growth, and inflation. We also controlled for labor costs
(median household income, Gallup, 2006–2012), corporate tax rate
(KPMG), U.S. free trade agreements (Office of the United States Trade
Representative; 1 for agreement, 0 otherwise), English as an official
language (Central Intelligence Agency’s World Factbook; 1 for English,
0 otherwise), and the geographic distance (in thousands of miles) be­
tween the capital cities of the home and host nations.
We also included firm-level controls, which primarily were collected
from the Wharton Research Data Services (WRDS) databases. Firm age
(in years), firm size (number of employees, natural log), firm perfor­
mance (return on assets, ROA), R&D intensity (R&D spending over total
sales), foreign sales intensity (foreign sales over total sales), board in­
dependence (proportion of independent directors), CEO duality (coded
1 if dual CEO-chair, 0 otherwise), CEO incentive pay structure (pro­
portion of incentive pay), CEO total compensation (in millions), and
primary industry (dummy, 2-digit NAICS) were controlled.
5. Analysis & results
Logistic regression with two-way clustered standard errors was used
to account for unobserved firm-country and time effects (Berry, Guillén,
& Zhou, 2010; Petersen, 2009). Moreover, this approach accounts for
correlated observations, controls for variance not driven by the
variables of interest as well as time-varying effects, allows for variables
that are constant over time, and does not add multiple dummy vari­
ables, thus conserving power. It also avoids some of the restrictive as­
sumptions of conditional logit and fixed effect logit models used in
some prior studies (Belderbos et al., 2017; Williams, 2018). Descriptive
statistics and bivariate correlations are in Tables 2a (country variables)
and 2b (firm variables). Table 3 reports the regression results.
The hypothesis posited that safety risk reduces countries’ attrac­
tiveness to MNCs. We found support (Model 2) for this hypothesis;
safety risk negatively relates to MNCs’ international investments (b =
−0.21, p < 0.001, 95 % CI = −0.31, −0.11). In practical terms, as
safety risk increases from the mean to one standard deviation above the
mean, the predicted probability of investment falls by approximately 34
%. As a robustness test, we used a panel general estimating equation
(GEE) (Flores & Aguilera, 2007), which allows correlated observations
within groups and is a robust variance estimator. The results resemble
those reported in the primary analysis (b = −0.19, p < 0.001). Below,
we discuss the results of several additional analyses which were used to
substantiate our theory and result.
Although safety risk is a pressing concern for MNCs, some choose to
operate in these high safety risk environments, indicating there are
mechanisms through which safety risk can be managed. Because safety
risk has different drivers than previously studied aspects of institutional
risk (e.g., policy risk), executives have different options for mitigating
it. Specifically, firms with experience in similar institutional environ­
ments may learn about and become more comfortable with safety risk.
MNCs (working alone or with others) also can build alternative in­
stitutional structures, namely private security forces, to reduce concerns

Table 2b
Descriptive statistics and bivariate correlations, firm variables.
Variable Mean S.D. 1 2 3 4 5 6 7 8 9 10

1. MNC int’l investment 0.21 0.41 1

2. Safety risk experience 0.13 0.14 0.08 1
3. Firm age 87.48 47.75 0.05 −0.07 1
4. Firm size (log emp) 4.42 0.97 0.04 −0.07 −0.03 1
5. Firm perf. (ROA) 0.05 0.07 0.04 −0.17 −0.07 0.11 1
6. Board independence 0.82 0.12 0.09 0.03 0.26 −0.05 0.02 1
7. CEO duality 0.65 0.48 0.10 0.11 0.30 −0.05 0.00 0.34 1
8. Foreign sales intensity 0.36 0.23 0.27 0.13 0.13 0.11 0.13 0.17 0.12 1
9. CEO pay structure 0.86 0.14 0.02 −0.04 0.15 −0.06 0.08 0.10 0.11 0.01 1
10. CEO total comp. 14.33 10.55 0.03 −0.08 0.01 0.10 0.12 −0.03 0.05 0.06 0.42 1
11. R&D intensity 0.03 0.05 0.14 −0.04 0.11 0.02 0.27 0.12 0.02 0.37 0.06 0.18

a. For both correlation tables: n = 66,956, with the exception of security investments.
b. All reported correlations (both tables) ≥0.01 are significant at p < 0.05.

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K. DeGhetto, et al. Journal of World Business 55 (2020) 101129

Table 3
Impact of safety risk on MNCs’ international investments, 2008–2013.
Variable Model 1 Model 2 Model 3 Model 4
Controls Safety risk Safety risk Moderators

Safety risk −0.21*** −0.14*(0.06) −1.10***

(0.05) (0.15)
GDP (log) 0.87*** 0.88*** 1.06*** 1.03*** (0.04)
(0.03) (0.03) (0.03)
GDP growth −0.03† −0.02†(0.01) −0.02*(0.01) −0.02
(0.01) (0.01)
Population 0.09 0.02 −0.11 0.03
(0.16) (0.16) (0.17) (0.17)
Labor costs 0.03 −0.07* −0.39***(0.07) −0.30***
(0.03) (0.04) (0.07)
Tax rate −0.96** −0.53 2.53** 1.80*
(0.34) (0.36) (0.71) (0.76)
Inflation −0.03*** −0.03***(0.01) −0.01(0.01) −0.01
(0.01) (0.01)
US FTA 0.66*** 0.72*** 0.21† 0.15
(0.08) (0.08) (0.11) (0.11)
English (official language) 0.60*** 0.65*** −0.05 −0.12
(0.09) (0.09) (0.18) 0.19
Geographic distance −0.06*** −0.07***(0.01) −0.08***0.01 −0.08***
(0.01) (0.01)
Firm age −0.01*** −0.01***(0.00) −0.01***(0.00) −0.01***
(0.00) (0.00)
Firm size (log emp.) 0.52*** 0.52*** 0.54*** 0.54***
(0.07) (0.07) (0.08) (0.08)
Firm perf. (ROA) −2.38† −2.35†(1.32) −1.37(1.18) −1.41
(1.32) (1.20)
Board independence −0.54† −0.53(0.32) −0.81†(0.47) −0.82†
(0.32) (0.47)
CEO duality 0.53*** 0.53*** 0.62*** 0.63***
(0.11) (0.11) (0.14) (0.14)
CEO pay structure 0.73† 0.74† 0.81 0.81
(0.40) (0.40) (0.50) (0.49)
CEO total comp. −0.02 −0.02(0.01) −0.02(0.01) −0.02
(0.01) (0.01)
Foreign sales intensity 2.60*** 2.60*** 3.33*** 3.34***
(0.17) (0.17) (0.25) (0.25)
R&D intensity −0.07 −0.09 2.97** 2.98**
(1.11) (1.12) (1.10) (1.11)
Corruption −0.35* −0.45**
(0.17) (0.16)
Form of government −0.08*** −0.09***
(0.01) (0.01)
Rule of law −0.08 0.05
(0.17) (0.17)
Violent conflict 0.05 0.02
(0.05) (0.05)
Terrorism −0.20** −0.10†
(0.06) (0.06)
MNC safety risk exp. 5.98*** 0.95
(0.49) (1.00)
Security investments −0.01* −0.04***
(0.00) (0.01)
MNC safety risk exp.*safety risk 1.70***
(0.34)
Security investments*safety risk 0.01***
(0.00)
Industry controls Yes Yes Yes Yes
Wald χ2 14,189*** 14,132*** 8928.8*** 8931.4***
Pseudo R2 39 % 39 % 43 % 43 %

a. Models 1−2: n = 66,956 firm-country-year observations; Models 3−4: n = 49,747 firm-country-year observations.
b. † p < .10; *p < .05; **p < .01; ***p < .001.
c. Standard errors reported below regression coefficients.
d. All models are estimated using two-way clustered standard errors to account for unobserved firm-country and year effects.

about safety risk. As our first post hoc analysis, we tested the effects of
these interactions.
As expected, MNC safety risk experience, measured as the percen­
tage of each firm’s previous international investments in high safety risk
countries (top 25 % in 2007), weakened the negative relationship be­
tween safety risk and MNCs’ investments in countries (Model 4, b =
1.70, p < 0.001). Fig. 1, which includes lines plotted at one standard
deviation above and below the safety risk experience mean, shows that
MNCs with no safety risk experience are less likely to invest as safety
risk increases. In contrast, for MNCs with ample international experi­
ence in high safety risk countries, safety risk has virtually no relation­
ship with investment. This result further substantiates the theorized
causal mechanism linking country safety risk to MNCs’ international
investment decisions. That is, because this very specific type of

6
K. DeGhetto, et al.
Fig. 1. Interaction plot for safety risk and MNC safety risk experience.
Fig. 2. Interaction plot for safety risk and security investments.
experience weakens the main effect, country safety risk likely is redu­
cing investment directly (as hypothesized) as opposed to another ex­
planation such as correlations among variables.
Also as expected, security investments, measured as the percentage
of firms paying for security (e.g., “equipment, personnel, or profes­
sional security services;” Enterprise Surveys Indicator Descriptions,
2017, p. 45) in a country weakened the negative relationship between
safety risk and MNCs’ investments in countries (Model 4, b = 0.01,
p < 0.001). Fig. 2 illustrates this interaction, with lines plotted at one
standard deviation above and below the mean. When security invest­
ments are low, MNCs are less likely to invest in high safety risk coun­
tries when compared with low safety risk countries. However, when
security investments are high, there is virtually no difference across
institutional environments. This finding, like the previously reported
interaction, offers additional support of the causal mechanism under­
lying safety risk. It is unlikely, for instance, that security investments
would moderate the direct effect of other institutional factors, such as
corruption, concentration of power, or cultural distance. Moreover, the
interaction result indicates that MNC executives do care about the
physical safety of their employees, and managing this risk with private
security results in additional investment.
Second, as discussed previously, other institutional factors (e.g.,
corruption) might affect foreign investment. They may also be ante­
cedents or correlates of safety risk. Thus, as reported in Models 3 and 4,
we controlled for some of these constructs, including corruption
(Worldwide Governance Indicators), form of government (Freedom
House), violent conflict (GPI, Uppsala Conflict Data Program), terrorist
activity (GPI, Global Terrorism Database), and rule of law (Worldwide
Governance Indicators). Variables were reverse coded as needed, so
that like safety risk, higher values on each variable indicate more risk.
Although, and as expected, some of the institutional variables are
highly correlated (see Table 2a), the negative effect of safety risk on
MNCs’ investments in countries remained significant (Model 3, b =
−0.14, p = 0.01).
7
Journal of World Business 55 (2020) 101129
Third, prior work suggests that cultural distance may affect MNCs’
investment decisions. We tested the effect of safety risk on MNCs’ in­
ternational investments, while controlling for cultural distance, on a
smaller sample for which these data were available. We used Hofstede’s
(1980) power distance, uncertainty avoidance, masculinity/femininity,
and individualism-collectivism variables, and Kogut and Singh’s (1988)
method was used to compute cultural distance. With this added control,
safety risk negatively related to MNCs’ investments in countries (b =
−0.13, p = 0.03; n = 45,730).
Finally, we examined whether new investment choices (4.3 % of the
total investments evaluated, others were continuing or expansionary)
and host country experience influenced the results. We dropped all
instances of new subsidiary investments and retested the hypothesis.
Relatedly, we controlled for prior host country experience (coded 1 if
the firm had invested in the country prior to the sample period – in
2007 – and 0 otherwise). In both cases, results were similar to those
above.
6. Discussion & conclusion
Safety risk arises from the normalization of aggression, violence,
and criminality (personal and property) by individuals against one
another. Thus, safety risk endangers the well-being and security of MNC
employees and assets in a country. This novel aspect of the institutional
environment differs in notable ways from previously studied institu­
tional factors, and importantly, deters MNCs’ investments in countries.
Executives do not want to endanger themselves, their expatriates, their
local employees, or their firms’ assets. There are two primary implica­
tions of this study’s findings.
First, future international business research should consider safety
risk when evaluating MNCs’ global strategies. We specifically evaluated
international investment (i.e., whether the firm invested in the country
or not), but there are other outcomes to consider which are relevant to
both firms and countries’ economies, such as entry modes, performance
outcomes, and parallel strategies potentially related to increases in
social responsibility, political activity, and so on. Moreover, the post
hoc analyses evaluated two factors that explain how MNCs can manage
safety risk: experience and security investments. These analyses help
support our theoretical explanation, which suggests that MNCs are
concerned about safety risk because it creates uncertainty and en­
dangers the physical security of MNCs’ personnel and assets. However,
we did not observe strategies MNCs use to reduce safety risk in the
countries where they operate.
Second, research on institution-based perspectives in international
business (i.e., studies on the effects of countries’ institutional risk fac­
tors) should work to better understand what drives safety risk and how
it relates to other aspects of the institutional environment. Various
types of institutional risk (e.g., corruption, violent conflict, concentra­
tion of public power) typically are studied in isolation. However, the
reality is that many nations are plagued with more than one type of
institutional risk. We believe it will be important to study how safety
risk is perceived and managed simultaneously with these other factors.
Likewise, because safety risk is an important institutional factor, future
research should work to understand its key drivers. Although our theory
touched on factors that relate to safety risk, we did not evaluate its
antecedents. Understanding these antecedents could help predict and
mitigate safety risk.
In sum, this research contributes by introducing safety risk theore­
tically, validating a safety risk measure, and demonstrating the effect of
safety risk on MNCs’ international investment decisions. If safety risk
remains a priority for MNC executives, as expected, high safety risk
countries likely will continue to see lower foreign investments from
MNCs. Considering its importance, scholars and executives can use this
research as a resource to better understand and evaluate the effects of
country safety risk, either alone or in combination with other aspects of
the institutional environment.
K. DeGhetto, et al. Journal of World Business 55 (2020) 101129

Funding Fainshmidt, and anonymous reviewers for their thoughtful feedback.

This research did not receive any specific grant from funding
agencies in the public, commercial, or not-for-profit sectors.
Acknowledgements
Our research team also thanks Chad Van Iddekinge, Pamela Perrewé,
and the reviewers and participants at the Academy of Management
conference in Atlanta, Georgia for their comments on earlier versions of
this research. Finally, we are grateful to the Institute for Economics and
Peace for providing us with valuable data.

We would like to acknowledge the JWB Senior Editor, Stav

Appendix A

See Table A1.

Table A1
Average safety risk scores (2008–2013) and rank for sample countries, including the U.S. (n = 124).
Country Safety risk score Rank

Czech Republic 1.25 1

Japan 1.25 1
Slovenia 1.25 1
Portugal 1.27 4
Denmark 1.38 5
Norway 1.38 5
Canada 1.50 7
New Zealand 1.50 7
South Korea 1.50 7
Sweden 1.54 10
Austria 1.56 11
Kuwait 1.58 12
Qatar 1.63 13
Singapore 1.67 14
Taiwan 1.67 14
Slovakia 1.71 16
Australia 1.75 17
Belgium 1.75 17
Finland 1.75 17
Germany 1.75 17
Ireland 1.75 17
Malaysia 1.75 17
Netherlands 1.75 17
France 1.81 24
Hungary 1.81 24
United Kingdom 1.81 24
Poland 1.83 27
Bahrain 1.98 28
Cyprus 2.00 29
Jordan 2.00 29
Morocco 2.00 29
Spain 2.00 29
Vietnam 2.00 29
United States 2.08 34
Greece 2.10 35
Egypt 2.21 36
Estonia 2.21 36
China 2.25 38
Tunisia 2.25 38
Iran 2.29 40
Romania 2.38 41
Nepal 2.45 42
Chile 2.46 43
Croatia 2.46 43
Moldova 2.46 43
Saudi Arabia 2.50 46
Uruguay 2.50 46
Serbia 2.58 48
Israel 2.60 49
Senegal 2.60 49
Syria 2.60 49
Latvia 2.63 52
Mongolia 2.63 52
Italy 2.65 54
Bulgaria 2.67 55
Laos 2.67 55
(continued on next page)

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K. DeGhetto, et al. Journal of World Business 55 (2020) 101129

Table A1 (continued)

Country Safety risk score Rank

Lithuania 2.71 57
Algeria 2.75 58
Azerbaijan 2.75 58
Montenegro 2.78 60
Argentina 2.78 60
Belarus 2.83 62
Indonesia 2.83 62
Libya 2.83 62
Turkey 2.83 62
Thailand 2.88 66
Burkina Faso 2.90 67
Rwanda 2.90 67
North Macedonia (FYR) 2.92 69
Ukraine 2.92 69
Armenia 2.94 71
Ghana 2.98 72
Albania 3.00 73
Bangladesh 3.00 73
Botswana 3.00 73
Sierra Leone 3.00 73
Mali 3.02 77
Sri Lanka 3.04 78
Lebanon 3.06 79
Costa Rica 3.08 80
Georgia 3.10 81
Madagascar 3.13 82
Tanzania 3.13 82
Uganda 3.13 82
India 3.17 85
Tajikistan 3.17 85
Nicaragua 3.19 87
Bolivia 3.23 88
Panama 3.23 88
Peru 3.25 90
Pakistan 3.35 91
Kyrgyz Republic 3.38 92
Zambia 3.38 92
Ecuador 3.46 94
Yemen 3.46 94
Angola 3.50 96
Paraguay 3.50 96
Philippines 3.50 96
Cameroon 3.54 99
Dominican Republic 3.67 100
Benin 3.75 101
Liberia 3.75 101
Niger 3.75 101
Russia 3.75 101
Mauritania 3.88 105
Haiti 3.92 106
Cambodia 3.94 107
Burundi 3.95 108
Kenya 4.00 109
Brazil 4.09 110
Republic of the Congo 4.13 111
Mexico 4.19 112
Sudan 4.21 113
Colombia 4.25 114
Venezuela 4.33 115
El Salvador 4.35 116
South Africa 4.46 117
Chad 4.48 118
Honduras 4.50 119
Guatemala 4.54 120
Nigeria 4.63 121
Democratic Republic of the Congo 4.65 122
Afghanistan 4.92 123
Iraq 5.00 124

9
K. DeGhetto, et al.
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