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The Decision Behavior of Taiwan Firms Investing in China: Evidence from Different Industries

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  • Szu-Hsien Lin

    (Department of Business Administration, National Chung Cheng University, Chiayi Country 62102, Taiwan, R.O.C.;
    Department of Finance, Transworld University, No. 1221, Zhennan Rd., Douliu City, Yunlin Country 640, Taiwan, R.O.C.)

  • You-Jie Chen

    (National Chung Cheng University, Taiwan)

  • Tz-Li Wang

    (National Chung Cheng University, Taiwan)

  • Hung-Chih Wang

    (Department of Business Administration, National Chung Cheng University, 168 University Road, Minhsiung Township, Chiayi Country 62102, Taiwan, R.O.C.;
    Department of Business Administration, Taiwan Shou-Fu University, 168, Nanshi Li, Madou Dist., Taiwan City, Taiwan 72153, R.O.C)

  • Ya-Chiu Angela Liu

    (National Chung Cheng University, Taiwan)

Abstract

The main purpose of this paper is to explore Taiwanese firms' risk behavior when investing in China. Firms' investment decision-making in relation to risk propensity may be affected by its (1) aspiration performance, (2) looming bankruptcy, (3) sound operating resource, and/or (4) investment behavior within an industry. There is no reason to believe that a consensus of risk behavior is shared among various industry sectors. Nevertheless, little empirical evidence exists on this issue in the academic world. Apart from risks associated with globalization, firms in Taiwan, unlike those of other nations, face very high political risk owing to the cross-strait political tension with China. Past researchers have taken variables such as innovation or R&D expenditure as proxies in testing the risk behavior of firms, and yet the reliability of these two variables to represent risk behavior remains arguable. The authors use China investment as the proxy for risk behavior of firms in Taiwan to study the decision-making behavior of two groups: One group in electronic and information technology (EIT) industry and another group in the nonelectronic and information technology (nonEIT) industry. Empirical results show that (1) China investment is significantly affected by peer investment; (2) the EIT firms are more aggressive in resource utilization; and (3) R&D expenditure has a significant positive relationship with China investments in Taiwanese firms with strong past performance.

Suggested Citation

  • Szu-Hsien Lin & You-Jie Chen & Tz-Li Wang & Hung-Chih Wang & Ya-Chiu Angela Liu, 2012. "The Decision Behavior of Taiwan Firms Investing in China: Evidence from Different Industries," Review of Pacific Basin Financial Markets and Policies (RPBFMP), World Scientific Publishing Co. Pte. Ltd., vol. 15(01), pages 1-25.
    • Handle: RePEc:wsi:rpbfmp:v:15:y:2012:i:01:n:s0219091512500026
    DOI: 10.1142/S0219091512500026
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    References listed on IDEAS

    as
    1. Razin, Assaf & Sadka, Efraim & Mody, Ashoka, 2002. "The Role of Information in Driving FDI: Theory and Evidence," CEPR Discussion Papers 3619, C.E.P.R. Discussion Papers.
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    More about this item

    Keywords

    Behavioral theory; risk behavior; search behavior; decision behavior;
    All these keywords.

    JEL classification:

    • G1 - Financial Economics - - General Financial Markets
    • G2 - Financial Economics - - Financial Institutions and Services
    • G3 - Financial Economics - - Corporate Finance and Governance

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