How Does the Sustainable Investment Climate Affect Firm Geographic Diversification in China? Managerial Discretion as a Mediator

Huirui Zhang and Sanbao Zhang
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Huirui Zhang: Economics and Management School, Wuhan University, Wuhan 430072, China
Sanbao Zhang: Economics and Management School, Wuhan University, Wuhan 430072, China

Sustainability, 2022, vol. 14, issue 5, 1-16

Abstract: Although existing research has explored the main effects of the sustainable investment climate, including political and legal environments, on the performance of firms’ geographic diversification, most studies neglect the role of strategic leadership, especially the CEO. The concept of managerial discretion provides a theoretical lens to fill this void. Using a large database from the Investment Climate Survey conducted by The World Bank, which covers 12,400 firms from 120 cities among China’s 30 provinces, we empirically prove that the investment climate, including governmental, legal, and financial environments, significantly influence the degree of CEO managerial discretion. Moreover, CEO managerial discretion is positively associated with firm geographic diversification and mediates the relationship between the investment climate and firm geographic diversification. Specifically, the greater the CEO managerial discretion, the lower degree of firm investment within the city and the province in which it is headquartered and the higher level of the firm’s internationalization. Implications for firms’ geographic diversification and constructing a sustainable investment climate for emerging markets are finally given.

Keywords: investment climate; strategic leadership; managerial discretion; geographic diversification (search for similar items in EconPapers)
JEL-codes: O13 Q Q0 Q2 Q3 Q5 Q56 (search for similar items in EconPapers)
Date: 2022
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