Home country environment and the downside risk implications of multinationality: Empirical evidence from Chinese SMEs

Chao Zhou

Journal of Multinational Financial Management, 2023, vol. 69, issue C

Abstract: According to real options theory, a global network built through multinational investments endows a firm with a series of options for future development. These options can enhance a firm’s operational flexibility, reducing its downside risk. This study aims to investigate the home country conditions necessary to achieve multinationality’s downside risk effect in Chinese small and medium-sized enterprises (SMEs). Using data from Chinese manufacturing SMEs from 2003 to 2021 and a Tobit regression model, this study finds that multinationality can significantly reduce the downside risk of Chinese SMEs. Moreover, the degree of home country economic openness and financial development can significantly enhance multinationality’s negative effect on downside risk. Further analysis suggests that the moderating effects of the home country environment are more prominent for state-owned firms than for privately-owned firms. Our findings emphasize the important role of a home country environment in achieving the value of multinationality’s flexibility.

Keywords: Multinationality; Downside risk; Real options; Home country environment; Economic openness; Financial development (search for similar items in EconPapers)
JEL-codes: F23 G28 G32 (search for similar items in EconPapers)
Date: 2023
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (3)

Downloads: (external link)
http://www.sciencedirect.com/science/article/pii/S1042444X23000294
Full text for ScienceDirect subscribers only

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:eee:mulfin:v:69:y:2023:i:c:s1042444x23000294

DOI: 10.1016/j.mulfin.2023.100810

Access Statistics for this article

Journal of Multinational Financial Management is currently edited by I. Mathur and G. G. Booth

More articles in Journal of Multinational Financial Management from Elsevier
Bibliographic data for series maintained by Catherine Liu ().