HOW DO MNCS VOTE IN DEVELOPING COUNTRY ELECTIONS? PAUL M. VAALER University of Minnesota Research on multinational corporations (MNCs) and host government political risk in developing countries has largely ignored local electoral politics, economic policies, and the MNC investment incentives they may generate. In response, I develop and test a framework for understanding MNC risk and investment behavior based on political business cycle considerations. Analyses of 408 MNC investments worth $199 billion in 18 developing countries holding 35 presidential elections from 1987 through 2000 are consistent with these considerations: MNCs perceive higher (lower) risk and announce fewer (more) investment projects as right-wing (left-wing) incumbents appear more likely to be replaced by left-wing (right-wing) challengers. Management research over five decades has in- vestigated political risk and investment behavior related to the divergent interests of foreign-domi- ciled multinational corporations (MNCs) and host governments in developing countries. Robinson (1963) identified political risk to international firms operating in newly independent and “nation- alistic” countries with occasional interest in breaching contracts or outright expropriation of firm assets. Vernon (1971) called attention to polit- ical risk associated with “obsolescing bargains” be- tween investing MNCs and developing country host governments over time. Kobrin (1979, 1987) articulated different components of political risk associated with a “bargaining hypothesis” and dif- ferent MNC responses intended to mitigate that risk. A general decline in expropriations during the 1980s and 1990s (Minor, 1994) coincided with new research directions regarding strategic actions de- veloping country host governments might take to attract larger shares of foreign investment (Murtha & Lenway, 1994) and what legal policies (LaPorta, Lopez-de-Silanes, Shleifer, & Vishny, 1998), eco- nomic policies (Murtha, 1993), and political insti- tutional arrangements (Henisz, 2000) might con- strain government actions. In the 2000s, interest remains strong in under- standing these topics: how governments matter for business investment incentives (Ring, Bigley, D’Aunno, & Khanna, 2005); how MNC investment decisions in emerging economies differ from those in industrialized democracies generally (Hoskis- son, Eden, Lau, & Wright, 2000) and, in particular, how MNCs’ investment willingness (Henisz & De- lios, 2001) and modes of investment (Delios & Hen- isz, 2000) evolve with their experience in managing local policy environments in emerging economies; and how MNCs identify and mitigate risks associ- ated with investing in and transforming formerly state-owned enterprises (Zahra, Ireland, Gutierrez, & Hitt, 2000). With such richly developed research streams, it is surprising that there are, to date, no theoretical models or quantitative empirical evidence to guide understanding of MNC risk and investment behav- ior when host government economic policies, pol- itics, and political institutions are arguably most vulnerable to change—that is, during elections. Past and present management research on obsolesc- ing bargains between MNCs and developing coun- try host governments, on reversals of economic pol- icies inducing MNC investment, and on MNC investment modes and strategies for privatizing en- terprises has not necessarily been tied to local elec- toral dynamics. Until the 1980s, this oversight may have been understandable. Developing countries often occupying researcher attention had one-party systems, as in Mexico or Poland, or military-led governments, as in Brazil or South Korea. With no I thank Ruth Aguilera, Bill Bernhard, Steve Block, Hadi Esfahani, Glenn Hoetker, Matt Kraatz, David Leb- lang, Joe Mahoney, Gerry McNamara, Steve Michael, Greg Northcraft, Mike Peng, Mike Preis, Dennis Quinn, Burkhard Schrage, Mike Sher, Sushil Vachani, Lou Wells, Bernie Yeung, three AMJ anonymous reviewers, and AMJ Associate Editor Amy Hillman for helpful com- ments, criticisms, and suggestions. I thank Ben Esty, Barclay James, Shawn Riley, Burkhard Schrage, Natalya Shipachova, Farzad Taheripour, and Guzel Tulegenova for help with data collection. I thank Randy Westgren and the University of Illinois at Urbana-Champaign Cen- ter for International Business Education and Research for generous financial support. All remaining errors are mine.  Academy of Management Journal 2008, Vol. 51, No. 1, 21–43. 21 Copyright of the Academy of Management, all rights reserved. Contents may not be copied, emailed, posted to a listserv, or otherwise transmitted without the copyright holder’s express written permission. Users may print, download or email articles for individual use only.