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Productivity, financial constraints and outward foreign direct investment: Firm-level evidence

Author

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  • Yan, Bing
  • Zhang, Yu
  • Shen, Yanzhi
  • Han, Jian

Abstract

This paper studies the relationship between the financial constraints and outward foreign direct investment (OFDI) of Chinese enterprises. First, we construct a theoretical model and develop a series of hypotheses to analyze how productivity and financial constraints influence firms' OFDI decisions. Then we construct a multivariate index to measure internal and external financial constraints. Using Chinese Industrial Enterprises Database as well as the Database of OFDI Firms in China, our empirical finds that both productivity and financial constraints have important impacts on firms' OFDI decisions. In addition, the marginal effect of the financial constraints increases as firms' productivity rises; an effect felt more to the private enterprises than state-owned enterprises. Empirical results also indicate that external financial constraints affect the firms' OFDI decisions more greatly than the internal financial constraints.

Suggested Citation

  • Yan, Bing & Zhang, Yu & Shen, Yanzhi & Han, Jian, 2018. "Productivity, financial constraints and outward foreign direct investment: Firm-level evidence," China Economic Review, Elsevier, vol. 47(C), pages 47-64.
    • Handle: RePEc:eee:chieco:v:47:y:2018:i:c:p:47-64
    DOI: 10.1016/j.chieco.2017.12.006
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    17. Jiang, Mingrui & Luo, Sumei & Zhou, Guangyou, 2020. "Financial development, OFDI spillovers and upgrading of industrial structure," Technological Forecasting and Social Change, Elsevier, vol. 155(C).
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    21. Ito, Tadashi & Ryan, Michael & Tanaka, Ayumu, 2023. "Partial ownership, financial constraint, and FDI," SocArXiv 9djup, Center for Open Science.
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    More about this item

    Keywords

    Outward foreign direct investment; Productivity; Financial constraints;
    All these keywords.

    JEL classification:

    • F21 - International Economics - - International Factor Movements and International Business - - - International Investment; Long-Term Capital Movements
    • F23 - International Economics - - International Factor Movements and International Business - - - Multinational Firms; International Business
    • G32 - Financial Economics - - Corporate Finance and Governance - - - Financing Policy; Financial Risk and Risk Management; Capital and Ownership Structure; Value of Firms; Goodwill

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