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Does partnering with the World Bank shield investors from political risks in less developed countries?
Institution:1. College of Administrative Sciences and Economics, Koç University, Rumelifeneri Mah., Rumelifeneri Yolu, 34450 Sariyer, Istanbul, Turkey;2. Department of Psychology, Faculty of Arts and Sciences, Acibadem Mehmet Ali Aydinlar University, Kayisdagi Cd., No. 32, 34752 Atasehir, Istanbul, Turkey;3. Department of Psychology, University of Central Florida, 4111 Pictor Lane, 32816 Orlando, FL, United States;4. University of Central Florida, 4111 Pictor Lane, 32816 Orlando, FL, United States;1. Business School, Sogang University, 35 Baekbeom-ro, Mapo-gu, Seoul, 04107, Republic of Korea;2. College of Business Administration, Pukyong National University, 45 Yongso-ro, Nam-gu, Busan, 48513, Republic of Korea;3. Business School, Hanyang University, 222 Wangsimni-ro, Seongdong-gu, Seoul, 04763, Republic of Korea;1. Korea University Business School, Korea University, Seoul, Republic of Korea;2. Ivey Business School, Western University, London, Ontario, Canada;1. University of Goettingen, Faculty of Economic Sciences, Platz der Goettinger Sieben 3, 37073 Goettingen, Germany;2. Macquarie University, Macquarie Business School, Department of Management, 4 Eastern Road, NSW 2109, Australia;1. School of Economics and Management, Tongji University, Shanghai City, 200092, China;2. School of Economics and Management, Southwest Jiaotong University, Chengdu, Sichuan Province, 610031, China;3. Department of Management, College of Business and Economics, Lehigh University, United States;4. Department of International Business, College of Business, San Francisco State University, United States;1. KU Leuven, Faculty of Economics and Business, Korte Nieuwstraat 33, 2000 Antwerpen, Belgium;2. Changeroo.com, Rotterdam, Netherlands
Abstract:This study explores whether partnering with the World Bank’s International Finance Corporation (IFC) protects foreign investors from aggressive actions by host countries’ governments. Building on the obsolescing bargaining model, we theorize that host states fear that hostile actions towards IFC-supported investments will damage their relationships with the World Bank. Within this context IFC support deters host government aggression towards investments. We assess our argument using country-level panel data as well as interviews with a sample of high-level managers. Findings suggest that IFC-support helps to reduce host state aggression against investing firms.
Keywords:Political risk  State-business relations  International Finance Corporation  World Bank  Obsolescing bargaining model
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