Does terrorism inhibit a country’s ability to attract international direct investment? If so, terrorism may have large costs in terms of employment losses, macroeconomic instability, and missed development opportunities. However, do investors fear terrorism because of direct risks to their assets, or because the opportunities in the host country deteriorate? And how do they adjust investments? We study the impact of terrorism on merger and acquisition decisions of 8,872 firms over 116 countries over 16 years. The firm-level perspective allows the isolation of host-country terrorism from firm-level characteristics such as size or experience as an explanation, by comparing decisions for the same firm across destinations. It also allows separation of investment responses into reductions or entire withholding of investment. A sample standard deviation increase in terrorism reduces merger and acquisition investment by around 30%. Firms do not generally reduce the size of their investment in the face of terrorism – instead, they decide not to enter the country altogether. We find no evidence to suggest that multinational firms are more sensitive to attacks on local business assets. A country-level analysis, which necessarily does not control for firm-level characteristics, yields materially different conclusions.