Surviving the Time: CEO Tenure and Its Impact on Risky Foreign Direct Investment in Conflict-Prone Belt and Road Initiative Participant Countries

Abstract

Introduced in 2013, the Belt and Road Initiative (BRI) emerged as a crucial catalyst in facilitating outward foreign direct investment (OFDI) of Chinese private enterprises. While the majority of BRI participant countries are characterized by high risk of violent conflicts, we have limited understanding of why firms invest in such regions despite such inherent risks. Thus, the aim of this study is to unveil the determinants of engagement in risky investment projects. Drawing on the literature of international business and strategic management, this study seeks to examine the relationship between CEO tenure and its impact on the likelihood of undertaking risky investments in the context of Chinese private firms in BRI participant countries. Using the sample of 1140 listed privately owned Chinese multinational enterprises (MNEs) that invested in at least one foreign country between 2013 and 2019, panel logistic regression was conducted to test the hypothesized relationships. The findings of this study indicate that the longer the CEO holds their position, the less likely the firm is to undertake risky investments. Moreover, when the longevity of CEO tenure is coupled with the presence of a dominant shareholder, this effect is further exacerbated. Furthermore, when a long-tenured CEO serves as the chairman of the board, the resistance to undertaking risky investment becomes stronger. By highlighting the effects of CEO tenure, as well as the relationship between governance characteristics and engagement in risky investment projects, this study suggests a sustainable corporate governance structure to build a transparent decision-making process for both investing firms and the host countries.