Internalizing Geopolitical Risk: Discretionary Cost Adjustment as Within-Envelope Resilience in Multinational Enterprises

Geopolitical risk can change faster than multinational enterprises (MNEs) can restructure ownership, location, or control arrangements. New Internalization Theory (NIT) explains how firms redraw the internalization envelope when cross-border hazards change, but says less about how managers govern existing operations before reconfiguration becomes feasible. We examine this pre-reconfiguration stage and argue that managers use discretionary support spending as a short-run resilience tool. When perceived geopolitical risk (PGR) rises, managers preserve liquidity by delaying adjustable Selling, General, and Administrative (SG&A) commitments until current revenue clarifies near-term exposure. Using a quarterly panel of publicly listed firms headquartered in 35 OECD countries from 2008 to 2023, and measuring PGR from earnings-call transcripts, we find that downside PGR makes SG&A more responsive to contemporaneous revenue. A regression discontinuity in time design around the unexpected 2016 US presidential election result supports this interpretation. We advance NIT by identifying a pre-reconfiguration governance channel: managers preserve liquidity while making discretionary SG&A spending contingent on contemporaneous revenue. The mechanism is strongest when PGR aligns with the firm’s geographic footprint, SG&A spending can manage near-term exposure, and institutional conditions permit within-quarter adjustment.