Expansion or retrenchment: Corporate investment reactions to external security risks

Hailiang Zhang, Yao Li, Haijun Wang and Lei Yin

Research in International Business and Finance, 2025, vol. 73, issue PA

Abstract: Intensifying power competition has raised the need to understand how corporations react to international security dynamic challenges. Using data on Chinese A-share listed companies from 2012 to 2022, we developed an index to measure external security risk and empirically study the influence of external security risks on corporate investment behavior. These findings indicate that corporations reduce real investment and increase financial asset allocation when external security risk is high. Meanwhile, corporations tend to expand overseas investments to enhance international diversification and turn toward low-risk regions. The technology and strategic emerging sectors exhibit a higher preference for real investment during periods of high external security risk. Furthermore, entrepreneurs’ family-nation sentiment can inhibit corporate financial investment and promote real investment. This study contributes to understanding how the external security environment shapes corporate investment strategies. It also demonstrates how entrepreneurial spirit can influence corporate investment decisions during periods of high security risk.

Keywords: External security risk; Investment behavior; Entrepreneurs’ family-nation sentiment; Great power competition; China (search for similar items in EconPapers)
JEL-codes: F21 F50 G30 (search for similar items in EconPapers)
Date: 2025
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Persistent link: https://EconPapers.repec.org/RePEc:eee:riibaf:v:73:y:2025:i:pa:s027553192400388x

DOI: 10.1016/j.ribaf.2024.102595

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