Financial Constraint And Chinese Choices Of OFDI:Cross-Border M&A Or Greenfield Investment

With the depth development of economic globalization,the OFDI of Chinese enterprises have been developing rapidly in recent years.While the enterprises' modes of entering the host country are different from each other,in terms of whether involving equity or not,the modes can be mainly calssifed into Greenfield and transnational mergers and acquisitions.With so many Chinese enterprise have OFDI,it is worthy to research how those firms choose different modes to get into the foreign market.In the process of OFDI,firms need much external capital and unimpeded financing channels to ensure their activities on the international stage.Enterprise financing ability is also important in the aspect of enterprise heterogeneity,while there are almost no scholars explore foreign investment mode from the perspective of financing constraints.In this paper,I will explore how the enterprises' heterogeneity of financial influence the investment mode selection.This paper mainly explores whether the financing constraint will affect the enterprise's pattern of outward investment.Moreover,the paper mainly analyzes three questions.First,whether the financing constraint is related to the enterprise's outward foreign direct investment modes or not,and the enterprises with small financing constraint will have a bigger probability to choose the transnational M&A or Greenfield investment mode.Secondly,the capital required by the parent company for its investment will be different since their host countries have different income levels.At this point,whether the financing constraints will affect the investment mode or not and how will they affect the investment mode respectively.Thirdly,with the different motivation of OFDI,there are significant differences in the capital required by the internationalization of the enterprise.At this time,what role will the financing constraints play in the mode of the enterprise's outward investment?The discussion of the above three problems will help to comprehensively clarify the current situation and characteristics of Chinese enterprises' OFDI modes,and will facilitate the internationalization of enterprises.According to the problems studied in this paper,this paper used the model of Manova(2013),and bring in Greenfield and transational M&A investement mode.Then conduct some Probit models for empirical analysis,mainly uses the financial data of China's industrial enterprise database.After controlling the characteristic variables and fixed effects of industry,time and district level,the results show that if financing constraints is smaller,the enterprise will have higher probability to choose acquisition,and the enterprises with higher financing constraints are more likely to choose Greenfield investment.More precisely,when the financing constraint index decreases by 1%,the probability of choosing cross-border M&A will increase by 2.51%.In addition,since different countries have different income levels,the capital thresholds for different investment modes will also be different.No matter in high-income or low and middle level countries,enterprises with small financing constraints tend to choose transnational M&A.As for the margin effect,it's-0.2349 in low and middle level countries,while in high levels countries,it's-0.0235.Finally,with different investment motives,financing constraints also play different roles.Under the investment motives of business services and production and sales,enterprises with low financing constraints more likely to choose transnational mergers and acquisitions,and their margin effect is-0.0335 and-0.0474 respectively.while under the motivation of technology research and development,financing constraints do not affect the choice of foreign investment methods.In general,the paper makes a systematic analysis of the OFDI mode from the perspective of financial heterogeneity.It analyzed the characteristics of Chinese enterprises' OFDI mode,and will be useful to the theoretical guidance of enterprises'OFDI.At the same time,we also realize that financing constraints are still hindering some enterprises' OFDI.Under the new normal of economic development,enterprises need to enhance their core competitiveness and perferm better on the international stage.Finally,in order to smooth the financing channels of enterprises and create a harmonious financial environment,the government should practice mixed ownership and improve the construction of capital market.