Once sued, twice shy: international litigation, trust radius, and international expansion

The world is witnessing an increase in interorganizational conflicts across borders, yet their impact on firms’ international expansion remains largely underexplored. Building on intergroup contact theory, we theorize that involvement in conflict with a foreign firm constitutes a form of negative intergroup contact, which can spill over into broader unfavorable attitudes—not only toward the specific foreign entity involved but also toward the foreign market more generally. Specifically, we predict that involvement in international litigation discourages a firm from undertaking international expansion. Furthermore, this negative spillover effect can be mitigated by trust radius—the width of the cooperation circle within a society. Firms embedded in regions with a wider trust radius and hence accustomed to interacting with diverse groups are less affected by international litigation. Results from a sample of Chinese publicly listed firms support our hypotheses. By testing and extending intergroup contact theory in international business research, we establish a theoretical link between interorganizational conflict and international expansion, and we also highlight trust radius as a key contributing factor to firms’ intergroup contact dynamics.