Financial Constraints,outward Foreign Direct Investment And Firm Performance

With the international situation becoming increasingly complex,China’s outward foreign direct investment is developed orderly and stably.However,China’s firms are faced with financial constraints in the process of deleveraging.The paper thinks it is necessary to find out whether financial constraints hinder the firms’ steps of going out.Besides,China’s foreign-invested firms are also confronted with many difficulties and challenges,greatly affecting their firm performance.The top priority for these firms now is to improve the quality and efficiency of outward foreign direct investment to achieve sustainable growth of firm performance.The paper draws on non-financial listed firms’ data from China Stock Market&Accounting Research Database over the period of 2012-2017 and foreign-invested firms’ information published by Ministry of Commerce of the People’s Republic of China.Based on the pecking order theory,the eclectic theory of international production and the principal-agent theory,the paper innovatively integrates financial constraints,outward foreign direct investment and firm performance in the same framework to carry out deeper research.The main conclusions can be drawn as follows.(1)Mixed logit model,panel logit model,fixed effects model and random effects model are built to study the relationship between financial constraints and outward foreign direct investment.The results of Score and S A index have shown that financial constraints significantly reduce the tendency of outward foreign direct investment;a young private enterprise tends to conduct outward foreign direct investment if it possesses the traits of high TFP,large enterprise scale and low capital intensity.(2)Using nearest neighbor matching,kernel matching and radius matching of propensity score matching,we find that immediate average treatment effect of outward foreign direct investment on firm performance is positive on the basis of both the overall and annual samples.lagged effect of outward foreign direct investment on firm performance reveals that positive effect gradually enhances during the first four years,but begins to wear off in the fifth year.(3)By group testing Score and SA index,financial constraints play a positive moderating role in the relationship between outward foreign direct investment and firm performance,whether firm performance is measured by ROA or ROE.Financially constrained firms are short of funds,which can reduce the negative impacts of double principal-agent problems on firm performance.