This paper contributes to the literature on business failure by investigating the relationship between terrorism and country-level global business failure. A sample of 174 countries over the period of 2009 to 2015 was used. To proxy for business failure, an insolvency index, which is a component of the World Bank’s Doing Business index, was used. The results of the fixed-effects estimations show that terrorism has a negative and significant relationship with business failure for the full sample. When the sample is divided into developed, developing and fragile states, the results show that terrorism is negatively and significantly associated with business failure in developing and fragile states only. The marginal effects of the interactions show that an increase in terrorist incidents by 100 will reduce business failure in South Asia and Sub-Saharan Africa (SSA) countries by 1% and 0.7%s, respectively. There are also relationships between our control variables relating to measures of financial development and business failure. These findings contribute to our understanding of the effects of terrorism on business failure and how this differs based on whether the country is developing, developed, or a fragile.

Introduction

This paper investigates the impact of terrorism on country-level global business failure and determines whether there are differences in its effects on business failure in developed, developing, and fragile countries. Terrorism is a new global business threat that has become a major challenge in the conduct and survival of global business (Jain & Grosse, 2009). Terrorism assumes many forms, making it difficult to predict its occurrence and impact (Enderwick, 2006; Shrivastava, 2005). Its impact on global business has been the focus of several recent theoretical and empirical research papers (Abadie & Gardeazabal, 2008; Bader & Berg, 2013; Enderwick, 2001; Jain & Grosse, 2009). Collectively, evidence from these studies suggests that beyond the loss of life and personal injuries that the victims of terrorist actions suffer and the atmosphere of fear that terrorists seek to create with their premeditated use of brutal violence, terrorism has multiple real economic consequences (Kollias, Papadamou, & Stagiannis, 2011) that are detrimental to the survival of international business.