How does international trade affect U.S. corporate investment? Evidence from the asset tangibility channel

Qing L. Burke, Mengying Wang and Xiaolu Xu

International Review of Economics & Finance, 2020, vol. 70, issue C, 41-54

Abstract: We examine how international trade affects corporate investment through its impact on asset tangibility. We hypothesize that when foreign export reduces a domestic firm’s asset tangibility, the firm’s response of capital investment to internal funds decreases. Using 2SLS regressions, we first document foreign export supply reduces domestic firms’ asset tangibility. Next, using a reduced-form investment regression, we find that as international trade-induced asset tangibility declines, capital investment responds less to cash flow. This study enhances our understanding of the consequences of international trade in the context of corporate finance by highlighting the influence of trade-induced financing frictions on corporate investment.

Keywords: International trade; U.S. imports; Competition; Asset tangibility; Capital investment (search for similar items in EconPapers)
JEL-codes: G31 L13 (search for similar items in EconPapers)
Date: 2020
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Persistent link: https://EconPapers.repec.org/RePEc:eee:reveco:v:70:y:2020:i:c:p:41-54

DOI: 10.1016/j.iref.2020.06.040

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