The Impact Of Economic Uncertainty On Chinese Companies’ OFDI Mode

In recent years,the international economic and political landscape has been complex and volatile,and deep-rooted global conflicts have become prominent,which seriously hampered the economic development of all countries.Series of "black swan" events,such as the China-Us trade friction,Brexit,COVID-19 and the Russia-Ukraine conflict,have intensified global economic uncertainty,and the World Uncertainty Index(WUI)reached a record high in the first quarter of 2020.The economic uncertainty in developed economies has exceeded that in low-income economies and emerging markets,and the stronger the trade and financial linkages between economies,the more synchronised the uncertainties.The existing research shows that economic uncertainty has a profound impact on macro economy,especially on investment.As an important form of companies’ investment activities,OFDI is an indispensable force to promote economic development,which can inject vitality into economic growth,promote to optimize the economic structure,as well as transform and upgrade industries.At the same time,the entry mode of OFDI directly affects the efficiency and profitability of companies’ investment activities,which is related to success or failure of the foreign operation.However,Chinese companies started OFDI late and there is not much experience for them.Under this circumstance,how to avoid the negative impact brought by domestic and foreign economic uncertainty and choose an appropriate international business model is a major issue in front of the current "going out" strategy,which is crucial for OFDI companies to expand overseas markets and enhance the international influence of Chinese economy.In this paper,we review literatures about the economic uncertainty,OFDI entry mode firstly and use it as an entry point to introduce the topic.In the theory part,we review the existing mainstream theoretical views of the OFDI entry mode and propose the research hypothesis.In terms of empirical analysis,this paper conducts an empirical analysis with a sample of Chinese A-share listed companies from 2004-2015: firstly,the benchmark model’s regression is carried out,and then the robustness test is conducted by replacing by the Probit method,replacing key explanatory variables and considering the impact of financial crisis;secondly,the moderating term is introduced to investigate the moderating effect of financing constraints on economic uncertainty;what’s more,the heterogeneity analysis is carried out to analyze the influence of economic uncertainty on the OFDI entry mode with different ownership types,different locations and different income levels.Finally,the empirical analysis result shows that:(1)Chinese firms prefer M&A to greenfield investment when the domestic or host country faces high economic uncertainty.And if economic uncertainty exists in both domestic and host countries,companies will consider both domestic and host country’s economic uncertainty to jointly decide the OFDI entry mode;(2)In addition to economic uncertainty,firmlevel factors such as scale,productivity,and macro-level factors such as the host country’s market size and institutional quality also affect OFDI entry mode;(3)When facing the higher host country’s economic uncertainty,the reduction of companies’ financing constraints is conducive to inducing them to choose M&A;(4)The heterogeneity analysis finds that SOEs will pay more attention to host country’s economic uncertainty than domestic country’s economic uncertainty;the OFDI entry mode of non-eastern firms is mainly influenced by host country’s economic uncertainty,and the effect of domestic country’s uncertainty is not significant;the OFDI entry mode does not seem to be sensitive to economic uncertainty when in low-and middle-income countries.