Fair competition and investment behavior of foreign-invested firms—Evidence from a quasi-natural experiment in China

Xiaodi Huang, Xiaoxiong Chen, Zuming Liang, Hongjie Wu and Siyang Kang

Economic Analysis and Policy, 2025, vol. 85, issue C, 2234-2246

Abstract: This study systematically investigates the effect of fair competition on the investment of foreign-invested firms by utilizing China's Fair Competition Review System in 2016 as an exogenous shock. Particularly, we run a triple-difference regression based on the type and location of firms. The findings demonstrate that the improvement of fair competition significantly increases fixed asset investment in foreign-invested firms relative to domestic firms, particularly in firms with strong financial constraints, high operational uncertainty, high capital intensity and in regions with low financial development and high economic policy uncertainty. Further mechanism tests show that fair competition significantly promotes foreign-invested firms’ access to bank credit and reduces their perceived uncertainty, thus increasing investment, compared to domestic firms. In addition, labor employment, total factor productivity, operating income and R&D investment of foreign-invested firms have also significantly increased. Overall, our evidence highlights the active role of fair competition in promoting foreign-invested firms’ investment compared to domestic firms.

Keywords: Fair competition; Investment; Foreign-invested firm; Triple-difference estimation (search for similar items in EconPapers)
JEL-codes: G31 G38 M16 (search for similar items in EconPapers)
Date: 2025
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Persistent link: https://EconPapers.repec.org/RePEc:eee:ecanpo:v:85:y:2025:i:c:p:2234-2246

DOI: 10.1016/j.eap.2025.03.002

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