How Does Terrorism Change the Business Landscape for Firms?: A New Framework for Analyzing Risks

Introduction

There seem to be three certainties in life - not only death and taxes as the adage goes, but also terrorism. Terrorism has been a recurrent feature of the Common Era since the first century (Rapoport, 1984) though its tactical usage exploded internationally with the advent of mass communications in the late 19^th century (Rapoport, 2004). In recent years, both the number of international terrorist incidents and fatalities has only continued to rise (START, 2016). Hardening high - value targets may reduce the utility of attacking them (Flynn, 2007), but as strategic actors, terrorists respond by gravitating to softer targets that are by definition easier to strike (Enders & Sandler, 2004). The international terrorism threat is thus expected to evolve, but not end regardless of countermeasures (Arquilla & Ronfeldt, 2001).

Given the temporal and geographical reach of terrorism, there has been surprisingly scant theoretical or empirical research on the consequences of the violence to firms (Abrahms et al., 2019; Dau et al., 2018b; Czinkota, 2010). Institutional theory within the strategic management literature supplies a useful but underdeveloped starting point for anticipating the direction of firms threatened by terrorism as well as for the ability of firms to be agile in the face of risk. When related to business, this research program emphasizes how institutions are the bedrock of firms (Meyer, 2014; North, 1990; Scott, 1987; Thornton & Ocasio, 2005) and the environments they operate in (Dau et al., 2020; Moore et al., 2019). And yet, terrorists attack in order to sow fear in the population, polarize communities, and upset the stability of societies and markets undergirding the very institutions on which businesses thrive (Heymann, 2000).

In taking the institutional environment as exogenously given, the strategic management literature is thus inadequate for making theory - informed empirical predictions about how terrorism affects either the creation or adaptation of firms to terrorism. Cosmopolitan Memory Theory (CMT) from within the constructivist tradition of international relations can fill this conceptual void by clarifying the socio - cognitive impact of traumatic events on society through an understanding of social perspectives (Guzzini, 2000; Jackson, 2001). In elucidating societal responses to collective tragedies (Hurd, 2008; Risse, 2004; Suchting, 1992), CMT is a useful complement to institutional theory for projecting how firms respond to terrorism.