Expansion or retrenchment: Corporate investment reactions to external security risks

Intensifying power competition has raised the need to understand how corporations react to international security dynamic challenges. Using data on Chinese A-share listed companies from 2012 to 2022, we developed an index to measure external security risk and empirically study the influence of external security risks on corporate investment behavior. These findings indicate that corporations reduce real investment and increase financial asset allocation when external security risk is high. Meanwhile, corporations tend to expand overseas investments to enhance international diversification and turn toward low-risk regions. The technology and strategic emerging sectors exhibit a higher preference for real investment during periods of high external security risk. Furthermore, entrepreneurs’ family-nation sentiment can inhibit corporate financial investment and promote real investment. This study contributes to understanding how the external security environment shapes corporate investment strategies. It also demonstrates how entrepreneurial spirit can influence corporate investment decisions during periods of high security risk.