The Impact Of The Political Risk Of Host Country And Institutional Shareholders On China's OFDI

Since the 21 st century,the emerging economies led by China have brought rapid growth to the economic development of the whole world,and the developing countries occupy a large proportion of the emerging economies.Therefore,it is often not consistent to discuss the situation of the emerging economies with the previous research on the literature of developed countries.Although OFDI has been extensively studied worldwide,there is little literature on OFDI in Chinese enterprises that link political risk with institutional investors.Political risk is a broad concept and there is no clear definition.According to the literature of academia,political risk is also a kind of threat,which represents an uncertainty.The major source of uncertainty is mainly caused by the changes of political situation,political environment,policies and regulations in the host country.In most scholars' research on the risks faced by foreign investment,political risk is considered to be a key factor that directly affects foreign investment and is also a decisive factor affecting investors' perception.Ernst & Young's survey report(2017)confirms that the main factor constraining foreign investment in developed countries is political risk.The Economist Intelligence Unit(EIU)report also shows that the greatest threat to foreign investment comes from politics.OFDI in the US or European companies are mainly be research by the existing literature.Few empirical studies have focused on the importance of institutional shareholders,and whether the findings applicable to developed economies also apply to companies in emerging economies such as China.Emerging economies characterized by a lack of effective institutions and governance environments are significantly different from the Western situation in corporate governance and effectiveness.In the transitional economies,the host country has the characteristics of low political stability,vague legal order and intermittent ethnic conflicts.These reasons lead to the high political risk of the host country,which is not conducive to the long-term development of the country's enterprises.Institutional investors are believed to be able to effectively solve the dual agency problem by reducing the managerial opportunism and levying risks of controlling shareholders(government).The existence of institutional shareholders has at least established a positive image for Chinese companies by improving corporate governance.The paper's prediction of China's OFDI theory is to be confirmed by an empirical test based on the Belt and Road 64 countries during the period 2013-2017.By combining agency theory with risk theory,the article uses the investment gravity model,which theoretically analyzes the host country's political risk and institutional investors.The research,especially,uses agency theory from the corporate governance perspective to find out the impact of political risks and institutional constraints in the host country on OFDI in emerging economies is studied.The results show that the host country's political risk has a negative impact on China's OFDI,and institutional investors in listed companies can promote China's OFDI.Then based on the institutional perspective that institutions and organizations develop together in close and critical interactions(North,1990),the findings of this paper also show that institutional ownership is in OFDI when investment behavior is to be exposed by a lower institutional environment in which the positive role is more prominent.This institutional environment is characterized by weak political stability of the host country,imperfect legal order,and more constraints on investors and target companies.In general,the role of institutional shareholders in China's OFDI as a critical corporate governance mechanism is regarded as the result of multi-level institutional emergencies,which depends on the quality of the host country's national system and the company's specific institutional constraints.Therefore,the disadvantage of OFDI depends on the institutional background of the host country and the problems of the target company in the host country's institutional environment.