Firm Expectations and Investment: Evidence from the China-Japan Island Dispute
Cheng Chen (),
Tatsuro Senga (),
Chang Sun and
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Chang Sun: University of Hong Kong
Hongyong Zhang: Research Institute of Economy, Trade and Industry (RIETI)
No 838, Working Papers from Queen Mary University of London, School of Economics and Finance
How do real-time expectations affect firms’ economic decisions? We provide evidence by using a dataset on Japanese multinational firms’ sales forecasts and exploring an unexpected escalation of a territorial dispute between China and Japan in 2012. Our estimation substantiates that, after the escalation of the dispute, affiliates of Japanese multinational firms in China experienced a sharp but temporary decline in total sales relative to affiliates in other countries and a more persistent decline in investment. Moreover, the territorial dispute has led to persistent pessimism in these firms’ expectations about future sales, which can explain 60% of the overall decline in investment.
Keywords: forecasts; pessimistic expectations; geopolitical events; investment (search for similar items in EconPapers)
JEL-codes: E22 E32 D84 F51 (search for similar items in EconPapers)
New Economics Papers: this item is included in nep-cna and nep-mac
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Persistent link: https://EconPapers.repec.org/RePEc:qmw:qmwecw:838
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