The economic policy uncertainty and the choice of entry mode of outward foreign direct investment: Cross-border M&A or Greenfield Investment

Kexuan Zhou, Sanjay Kumar, Linhui Yu and Xinlin Jiang

Journal of Asian Economics, 2021, vol. 74, issue C

Abstract: The paper investigates the impact of economic policy uncertainty on the choice of entry mode of enterprises' Outward Foreign Direct Investment (OFDI). Based on a framework of heterogeneous enterprises, this paper first theoretically investigates the impact mechanism. The theoretical predictions are then empirically tested using rich micro-level data of Chinese enterprises from 2000 to 2013. The empirical results show that economic policy uncertainty has a significant effect on the entry mode choice of Chinese OFDI. Specifically, when the economic policy uncertainty decreases, enterprises choose Cross-border mergers and acquisitions mode with higher propensity than the Greenfield investments mode of OFDI. Further analysis indicates that the impact is heterogeneous based on ownership type, region, factor intensity, productivity level, financing abilities, and host country development level. Statistical robustness checks strengthen our findings. Our study has implications for researchers and government policymakers, especially in developing economies similar to China. The results could help device policies that encourage enterprises to choose a specific mode of ODFI. The study also provides novel insights for Chinese enterprises to "go out" and the Chinese economy to realize high-quality development.

Keywords: Economic policy uncertainty; OFDI; Entry Mode (search for similar items in EconPapers)
Date: 2021
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (11)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:asieco:v:74:y:2021:i:c:s104900782100035x

DOI: 10.1016/j.asieco.2021.101306

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