Disaster Experience and FDI Location Choice: The Moderating Role of Disaster Discontinuity

Research has suggested that firms can learn from their previous disaster experiences, and firms with such experiences tend to have a competitive advantage when investing in disaster-prone countries. This study highlights that while disaster experience conveys valuable learning opportunities, there is a boundary condition on its effectiveness. Specifically, this study focuses on a firm’s experience with disaster discontinuity, proxied by the variance of a firm’s annual exposure to a focal type of disasters, and suggests that it attenuates firms’ motives to learn from their recent disaster experiences. I hypothesize that the greater a firm’s experience with disaster discontinuity, the less likely the firm’s recent experience with high-impact disasters will increase its propensity to invest in disaster-prone countries. Analyzing data on greenfield FDIs of 1,239 U.S. MNEs and earthquake events in their target countries from 2011 to 2022, I found that the positive impact of recent disaster experience on MNEs’ investments in disaster-prone countries diminishes as firms’ experience with disaster discontinuity increases. The findings underscore the importance of understanding the boundaries of the learning advantages that firms can obtain from their previous disaster experiences. This study contributes to the literature by highlighting the nuanced nature of learning from adverse events and its implications for firms’ international investment decisions.