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Foreign direct investment comovement and home country institutions

Author

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  • Chen, Donghua
  • Yu, Xin
  • Zhang, Zhou

Abstract

We use a hand-collected dataset of firm-level foreign direct investment in China to examine the impact of home countries' institutional elements on the investment comovement between foreign and domestic firms. We find that foreign firms from countries with well-developed financial markets or a strong rule of law experience less comovement with Chinese domestic firms. Our evidence also suggests a contingency impact between the two channels of home country institutions; the capital markets effect exists only for foreign firms from countries with strong rule of law, whereas the rule-of-law effect holds only for firms from countries with well-developed financial markets. Finally, we show that firms from countries with better institutional quality exhibit greater investment efficiency than firms from countries with weaker institutions.

Suggested Citation

  • Chen, Donghua & Yu, Xin & Zhang, Zhou, 2019. "Foreign direct investment comovement and home country institutions," Journal of Business Research, Elsevier, vol. 95(C), pages 220-231.
  • Handle: RePEc:eee:jbrese:v:95:y:2019:i:c:p:220-231
    DOI: 10.1016/j.jbusres.2018.10.023
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    2. Mori Kogid & Jaratin Lily & Rozilee Asid & James M. Alin & Dullah Mulok, 2022. "Volatility spillover and dynamic co-movement of foreign direct investment between Malaysia and China and developed countries," Quality & Quantity: International Journal of Methodology, Springer, vol. 56(1), pages 131-148, February.
    3. Ștefan Cristian Gherghina & Liliana Nicoleta Simionescu & Oana Simona Hudea, 2019. "Exploring Foreign Direct Investment–Economic Growth Nexus—Empirical Evidence from Central and Eastern European Countries," Sustainability, MDPI, vol. 11(19), pages 1-33, September.
    4. Ming-Chang Huang & Tian-Jyun Gong & Shih-Ping Sun & Ping-Hsin Lin, 2023. "Obstacles or catalysts? A balanced view of formal institutional risks on FDI location choice," Asian Business & Management, Palgrave Macmillan, vol. 22(5), pages 2077-2105, November.
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    More about this item

    Keywords

    Investment comovement; Foreign direct investment (FDI); Home country institutions;
    All these keywords.

    JEL classification:

    • G30 - Financial Economics - - Corporate Finance and Governance - - - General
    • G38 - Financial Economics - - Corporate Finance and Governance - - - Government Policy and Regulation
    • G18 - Financial Economics - - General Financial Markets - - - Government Policy and Regulation
    • P20 - Political Economy and Comparative Economic Systems - - Socialist and Transition Economies - - - General

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