The Right-Wing Shift: Political Populism, Partisanship, and Foreign Investment Risk in Europe

Management research provides little guidance about when and how host-country politics influenced by nationalist, anti-elite populist parties affect foreign investment risk. In response, we develop and test hypotheses derived from a framework grounded in political risk theories assuming that foreign investors are more vulnerable to opportunistically adverse actions by host-country governments, but when led by right-wing parties typically espousing pro-investor policy preferences such actions are less likely. We propose that greater influence in host-country policy-making by right-wing populist parties counters pro-investor with anti-foreign policy preferences, thus raising risks of opportunistically adverse actions by host-country governments against foreign investors specifically. We find support for our proposal in analyses of 596 investment projects announced in 27 European countries from 1990-2020. Projects announced in countries with governments led by right-wing or centrist parties exhibit decreased risk measured as the percentage of equity comprising all project capital funding on announcement date. On the other hand, projects announced in countries with increasing vote percent and increasing legislative seats for right-wing populist parties exhibit increased risk, but only when led by foreign sponsors.