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OFDI Entry Modes and Firms’ Innovation: Evidence from Chinese A-Share Listed Firms

Chunhuan Xiao, Ziyin Zhuang and Amei Feng
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Chunhuan Xiao: School of Economics and Management, Wuhan University, Wuhan 430072, China
Ziyin Zhuang: School of Economics and Management, Wuhan University, Wuhan 430072, China
Amei Feng: School of Economics and Management, Wuhan University, Wuhan 430072, China

Sustainability, 2021, vol. 13, issue 14, 1-17

Abstract: Innovation is crucial for firms’ sustainable development. However, the original motivation of innovation in China is insufficient and the key technology is controlled by other countries. Outward foreign direct investment (OFDI) is an important strategic choice in emerging economies to seek overseas advantageous technical knowledge and to participate in global competition. With the further development of China’s “go global” strategy, OFDI flows have risen considerably. Whether OFDI can promote firms’ innovation levels and whether OFDI entry modes (greenfield investment and cross-border M&A) have the same impact are still major issues to be solved. Therefore, we constructed a mathematical model and adopted the propensity score matching double difference method to analyze the impact and mechanism of OFDI on firms’ innovation. The results show that OFDI has a significant effect on innovation quantity, quality, and efficiency, and it has not led to innovative strategic behavior. Further research shows that cross-border M&A has a stronger effect on innovation quality than greenfield investment, and both have a sustainable innovation effect. Over time, the gap between the impact of greenfield investment and cross-border M&A on innovation quality has gradually narrowed. From the perspective of mechanism, the two entry modes of OFDI are beneficial to firms’ access to government resources and to promote innovation quality, while government resources have a stronger mediating effect on cross-border M&A firms. This paper deepens the research on the influence mechanism of OFDI entry modes on firms’ innovation levels, while also providing theoretical and practical support for the selection of OFDI modes and innovation strategies for firms.

Keywords: innovation quality; innovation efficiency; outward foreign direct investment (OFDI); greenfield investment; cross-border M&A; government resources (search for similar items in EconPapers)
JEL-codes: O13 Q Q0 Q2 Q3 Q5 Q56 (search for similar items in EconPapers)
Date: 2021
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