When to Go Abroad: Economic Policy Uncertainty and Chinese Firms’ Overseas Investment

53 Pages Posted: 24 Jan 2018 Last revised: 9 Oct 2018

See all articles by Ji (George) Wu

Ji (George) Wu

Massey University - School of Economics and Finance

Dongmin Kong

Department of Finance, Huazhong University of Science and Technology; School of Finance, Zhongnan University of Economics and Law

Yiwen Wu

Massey University - School of Economics and Finance

Jian Zhang

School of Business and Management, Shanghai International Studies University

Date Written: July 30, 2018

Abstract

We study how economic policy uncertainty (EPU) influences firms’ overseas investment in Chinese listed companies. We find a significant negative relationship between EPU and firms’ overseas investment after controlling for firm characteristics and macroeconomic variables. Chinese firms seem to reduce their overseas investment on fixed income securities when facing a domestic policy uncertainty. The negative relationship is more pronounced for financially constrained firms relying on government subsidies and have low overseas revenues and SOEs. Firms located in high marketization regions can mitigate the negative effect of EPU on firms’ overseas investment. Our results remain significant when considering endogeneity problems. We contribute to the literature focusing on the interaction between EPU and corporate investment.

Keywords: Economic policy uncertainty, Overseas investment, China

JEL Classification: G18. G30, G32

Suggested Citation

Wu, Ji (George) and Kong, Dongmin and Wu, Yiwen and Zhang, Jian, When to Go Abroad: Economic Policy Uncertainty and Chinese Firms’ Overseas Investment (July 30, 2018). Available at SSRN: https://ssrn.com/abstract=3108128 or http://dx.doi.org/10.2139/ssrn.3108128

Ji (George) Wu

Massey University - School of Economics and Finance ( email )

Private Bag 102904
North Shore
Auckland, Auckland 0745
New Zealand
+6292127089 (Phone)

Dongmin Kong

Department of Finance, Huazhong University of Science and Technology ( email )

Wuhan, Hubei 430074
China

School of Finance, Zhongnan University of Economics and Law ( email )

Wuhan, Hubei 430073
China

Yiwen Wu

Massey University - School of Economics and Finance ( email )

Private Bag 11-222
Palmerston North, 30974
New Zealand

Jian Zhang (Contact Author)

School of Business and Management, Shanghai International Studies University ( email )

550 Dalian Road (West)
Shanghai, Shanghai 200083
China

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