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<p>Geopolitical conflicts can abruptly and significantly change the institutional conditions of multinational corporations (MNCs). Yet, the impact of such institutional friction on foreign divestment is not yet well understood. While prior research has conceptualized institutional friction as a dynamic alternative to static measures of institutional distance, its implications for firm behavior remain underexplored. We develop and test a model of institutional friction that captures how structural (political affinity), situational (military threat and regulatory responses), and operational (institutional embeddedness) friction jointly influence foreign divestment decisions, using the case of the Russian invasion of Ukraine. Based on data from 864 MNCs operating in Russia, we find that institutional friction arising from political affinity and military threat, combined with firms’ institutional embeddedness, significantly affects exit decisions. In contrast, economic sanctions imposed by Western countries have no direct effect on MNCs’ exit decisions but become consequential through their interaction with other dimensions of institutional friction, amplifying the effects of political affinity and military threat. These findings advance international business research by providing a structured and empirically grounded framework for analyzing how geopolitical conflicts affect strategic responses of MNCs. Specifically, we demonstrate how structural, situational, and operational frictions shape MNCs’ market exit decisions.</p>

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Violent conflicts, institutional friction, and foreign divestment: the case of MNCs’ market exit from Russia

  • 期刊论文

  • 发表日期：

    2026年7月22日

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  • Dirk Holtbrügge,
  • Marc Oberhauser,
  • Laura Kirste

摘要

Geopolitical conflicts can abruptly and significantly change the institutional conditions of multinational corporations (MNCs). Yet, the impact of such institutional friction on foreign divestment is not yet well understood. While prior research has conceptualized institutional friction as a dynamic alternative to static measures of institutional distance, its implications for firm behavior remain underexplored. We develop and test a model of institutional friction that captures how structural (political affinity), situational (military threat and regulatory responses), and operational (institutional embeddedness) friction jointly influence foreign divestment decisions, using the case of the Russian invasion of Ukraine. Based on data from 864 MNCs operating in Russia, we find that institutional friction arising from political affinity and military threat, combined with firms’ institutional embeddedness, significantly affects exit decisions. In contrast, economic sanctions imposed by Western countries have no direct effect on MNCs’ exit decisions but become consequential through their interaction with other dimensions of institutional friction, amplifying the effects of political affinity and military threat. These findings advance international business research by providing a structured and empirically grounded framework for analyzing how geopolitical conflicts affect strategic responses of MNCs. Specifically, we demonstrate how structural, situational, and operational frictions shape MNCs’ market exit decisions.