Other Unpublished Work | 2011

Military Ties, New Ventures, and Political Risk Management in Emerging Economies

by Shon R. Hiatt and Wesley Sine

Abstract

New ventures in emerging economies face a number of challenges such as political instability, corruption, and uncertain property rights that can severely hinder their ability to grow and survive, yet little is known about how startups can mitigate such risk. Using data on firms in Latin America over a 65-year time period, we explore how new ventures can gain advantages by establishing ties to what is typically the most powerful, coercive institution in a nation state—the military. We find that an affiliation with elite military actors (i.e. generals on boards of directors) increases a new venture's survival and lowers the probability new ventures will face adverse government actions such as expropriation. This research also demonstrates that the positive effects of military ties on new-venture performance increase in contexts characterized by greater political instability, market competition, and foreign ownership.

Keywords: Risk Management; Business Startups; Government and Politics; Developing Countries and Economies; Latin America;

Citation:

Hiatt, Shon R., and Wesley Sine. "Military Ties, New Ventures, and Political Risk Management in Emerging Economies." 2011.