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How does international trade affect U.S. corporate investment? Evidence from the asset tangibility channel

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  • Burke, Qing L.
  • Wang, Mengying
  • Xu, Xiaolu

Abstract

We examine how international trade affects corporate investment through its impact on asset tangibility. We hypothesize that when foreign export reduces a domestic firm’s asset tangibility, the firm’s response of capital investment to internal funds decreases. Using 2SLS regressions, we first document foreign export supply reduces domestic firms’ asset tangibility. Next, using a reduced-form investment regression, we find that as international trade-induced asset tangibility declines, capital investment responds less to cash flow. This study enhances our understanding of the consequences of international trade in the context of corporate finance by highlighting the influence of trade-induced financing frictions on corporate investment.

Suggested Citation

  • Burke, Qing L. & Wang, Mengying & Xu, Xiaolu, 2020. "How does international trade affect U.S. corporate investment? Evidence from the asset tangibility channel," International Review of Economics & Finance, Elsevier, vol. 70(C), pages 41-54.
    • Handle: RePEc:eee:reveco:v:70:y:2020:i:c:p:41-54
    DOI: 10.1016/j.iref.2020.06.040
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    More about this item

    Keywords

    International trade; U.S. imports; Competition; Asset tangibility; Capital investment;
    All these keywords.

    JEL classification:

    • G31 - Financial Economics - - Corporate Finance and Governance - - - Capital Budgeting; Fixed Investment and Inventory Studies
    • L13 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Oligopoly and Other Imperfect Markets

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