Thought Leadership

Does inward foreign direct investment (FDI) promote or inhibit the technological innovation of local firms? Prior research has generated mixed views and findings on this important question. To address this puzzle, we propose that FDI spillover and crowding-out effects may apply to different phases of innovation (i.e., idea generation and R&D implementation) respectively, which then leads to differential impacts of FDI on incremental and radical innovation. The results from a panel dataset of Chinese listed firms show that industry-level FDI is positively related to incremental innovation but has an inverted U-shaped impact on radical innovation. Furthermore, we find that technology gap reinforces the positive impact of FDI on incremental innovation while making its inverted U-shaped impact on radical innovation more pronounced, and when FDI local market focus is higher, the inverted U-shaped relationship between FDI and radical innovation is steeper. These findings reconcile the inconsistency regarding how FDI may affect local innovation and provide a novel analysis framework for the FDI literature.

While prior research has emphasized the economic threats posed by political risk, it is unclear how geopolitical risk (GPR), a supranational-level risk, affects global supply chain decisions. Drawing on the political economy perspective, we posit that GPR presents both opportunities and threats for multinational corporations (MNCs), depending on the political affinity between MNCs’ home and host countries. We also identify the risk-mitigation roles of MNCs’ political lobbying and market diversification. Using panel data from publicly listed MNCs in the US, we find that host-country GPR increases MNCs’ first-tier supply base when home–host country political affinity is high, but decreases when political affinity is low. Moreover, the positive effect of high-affinity host-country GPR on MNCs’ supply base is stronger, and the negative effect of low-affinity host-country GPR is weaker for MNCs with high levels of political lobbying or market diversification. These findings enrich the international business research and political economy perspective by elucidating both the opportunities and threats of GPR, and highlight the importance of risk-coping capabilities in managing GPR. These findings also provide insights for MNCs to adapt their strategies amid GPR by leveraging home–host political affinity, engaging in political lobbying, and pursuing market diversification to mitigate geopolitical challenges.

Our paper examines analyst reports and online stock opinion articles which recommend buying stocks that, based on the literature, trade at high prices and earn low future returns ("short-leg securities"). Using a textual analysis, we test whether the justifications primarily (1) emphasize safe-haven qualities, (2) indicate exuberance, or (3) highlight lottery-like features. Our results strongly point to (3). We subsequently validate our text-based inferences through a survey of institutional and retail investors with long positions in short-leg securities. Overall, perceived upside potential appears to play a material role in driving investor demand for stocks in the short legs of anomalies.