A Study On The Influence Of Arbitrage Motivation On The Time Of Overseas Investment Exit

Since the proposing of China’s "going out" strategy in 2000, the overseas investment of China has been developed rapidly. Among them, the performance of foreign direct investment is particularly prominent, not only achieved 13 consecutive years of growth, but also ranked third in the world for three consecutive years. Moreover, it also has a high proportion of overseas investment. Through foreign direct investment, a group of qualified state-owned enterprises optimize asset allocation on a larger scale, speeding up the layout of overseas assets. It is worth noting that as for important vanguards of China’s foreign direct investment, the mineral resources state-owned enterprises, which can be abbreviated as mineral resources SOEs, has made important contributions to ensure the needs of national security and stabilize the domestic price volatility. However under the background of the unstable development of economic and increasing uncertainty in external environment, foreign direct investment of the mineral resources SOEs has also exposed a lot of problems, which including low investment performance, investment losses and mergers and acquisitions failure, thus needing to exit timely. However in actual investment, we see that most mineral resources SOEs choose to keep on investing or just wait, which means they did not exit at the time they need to, thus missing the optimal timing of exit and resulting in further losses. So why is there such a phenomenon? This paper puts forward that mineral resource SOEs’exiting untimely is related to arbitrage motivation.Mineral resources have three properties, which are strategic properties, product attributes and metal properties. And the state-owned enterprises have features of universal subsidy mechanism, the lack of real supervisors and managers’ overconfidence. This determines that apart from other types of enterprises, arbitrage motivation exists in exit timing decision of foreign direct investment of mineral resources SOEs. While the exit of foreign direct investment is a real option, it seems reasonable but implies a lot of irrational component, especially that the presence of arbitrage motivation is entirely possible to weaken or affect foreign direct investment decisions. Based on this, pulling arbitrage motivation in the exit timing decision of foreign direct investment of mineral resources SOEs not only has good theoretical research value, but also has great practical value, which can better guide overseas investment practice of mineral resources SOEs. Especially for huge losses projects and zombie projects, it has a good draw reference value.Based on mineral resources SOEs and the classic real options model, this paper considers the reality, and incorporates arbitrage yield index to build exit timing decision real option model to study arbitrage motivation’s influence on the exit timing of foreign direct investment of mineral resources SOEs, thereby guiding overseas investment practice of mineral resources SOEs. Through derivation of theoretical model and analysis of numerical simulation, this paper finds that there is positive relationship between arbitrage yield and exit price threshold, which means the higher the arbitrage yield, the higher the exit price threshold, and further reaches the conclusion that arbitrage motivation delays the exit of mineral resource SOEs’ foreign direct investment by improving the exit price threshold. Taking the above research into account, this paper proposes that government should formulate relevant policies from the perspective of government subsidies and supervision to reduce and restrict the arbitrage behavior of mineral resource SOEs. Specific policy recommendations include improving the government subsidy mechanism and compressing the space of arbitrage, exploring government subsidies’ exit mechanism and activating intrinsic motivation of mineral resource SOEs, establishing lifelong accountability system of major decision and restricting manager behavior, establishing and improving the supervision laws and regulations of overseas Chinese investment and standardizing enterprise investment.