Legal Family and Infrastructure Voids as Drivers of Regulated Physical Infrastructure Firms' Exposure to Governmental Discretion

Firms operating in regulated physical infrastructure industries such as electricity, water or telecommunications do not always avoid the risks associated with governmental discretion when choosing a foreign country to invest in. We develop a theoretical framework based on the organizational capability view to account for the boundary conditions of this risk-seeking behavior: countries with a similar legal system as the one of the home country and with high infrastructure voids. An empirical analysis using panel data on the international expansion of Spanish listed firms from 1986 to 2008 confirmed our hypotheses.