Bilateral Political Relation,Host Country Risk,and Corporate Outward Direct Investment

At present,Chinese enterprises are actively practicing the strategy of "going global",continuously accelerating the pace of investment,and participating in international economic and trade activities with a more active attitude.In the process of foreign direct investment by enterprises,the investment environment of the host country and the political relations between the two countries are the key factors that must be considered by the enterprise.Does the level of national risk affect the size of an enterprise’s foreign direct investment and the success or failure of its investment?Does the bilateral political relationship help alleviate the uncertainty of the investment environment of the host country and promote the outward investment of enterprises?Based on the data of enterprises’ direct investment abroad from 2005 to 2017 in the "China Global Investment Tracking" database,this paper builds a comprehensive national risk indicator through principal component analysis to explore the impact of host country national risk and bilateral political relations on OFDI.Through empirical analysis,it is found that,overall,Chinese enterprises ’outbound direct investment has significant risk appetite,and they are more willing to invest in host countries with higher national risk levels;a sample test found that central enterprises and state-owned enterprises have risk appetite,while private enterprises’ foreign investment will avoid risk.In addition,enterprises are more inclined to invest in countries where the institutional environment is not as good as that of their own countries,and have the characteristics of reverse gradient investment;the closer the institutional environment of the two countries,the more conducive to attracting Chinese companies to invest directly abroad.A country with a high level of national risk,an inferior institutional environment,and a host country with institutional quality close to China are more likely to successfully attract corporate investment.Bilateral political relation not only directly affect corporate investment,but also indirectly affect the scale and success of foreign investment by changing the host country’s institutional environment.Political conflicts have significantly inhibited the scale of corporate investment;bilateral investment agreements are actively promoting the scale of corporate investment;mutual visits by political leaders of the two countries are negatively correlated with the scale and success of foreign direct investment by corporations.In general,the effect of bilateral political relations indirectly affecting the scale and success of corporate investment through country risk is not significant,but in sub-sample regression,bilateral investment agreements as variables of friendly relations between countries have optimized the investment environment of the host country to a certain extent Suppressed the scale of foreign investment of central enterprises with risk appetite.The above empirical results reflect the impact of the host country’s risk level and bilateral political relations on the company’s foreign direct investment,and also provide a certain reference for the company to make better investment decisions.