Bilateral conflicts and corporate investment

Mengxu Xiong, Jiajia Lu and Dongmin Kong

International Review of Financial Analysis, 2024, vol. 95, issue PB

Abstract: Based on the real time conflict data and the bilateral trade records, we construct an index that captures the risks of bilateral tensions perceived by firms. Using the novel index, we document that bilateral conflicts exert a significantly negative influence on corporate investment, which is conceivably due to reduced prospective investment earnings, tougher financing condition, and increased cash holdings. The findings remain valid under various robustness examinations and endogeneity tests, and the adverse effect is more pronounced for state-owned enterprises (SOEs), firms subject to stringent financial constraint, firms with higher investment irreversibility, firms located in regions of higher level of marketization, firms in Eastern regions, and firms with lower level of ownership concentration.

Keywords: Bilateral conflicts; Goldstein score; Corporate investment; China (search for similar items in EconPapers)
Date: 2024
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Persistent link: https://EconPapers.repec.org/RePEc:eee:finana:v:95:y:2024:i:pb:s1057521924003399

DOI: 10.1016/j.irfa.2024.103407

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