Expectation or risk aversion when outward foreign direct investment firms invest in the belt and road: Evidence from China

Abstract

This paper employs a difference-in-differences model to test the effect of the Belt and Road Initiative (BRI) on outward foreign direct investment (OFDI) firms’ risk-taking behaviors. The data was retrieved from the matching of Chinese A-share listed firms and those listed on the overseas investment firms issued by China’s Ministry of Commerce from 2011 to 2018. We find the BRI has significantly reduced OFDI firms’ risk-taking levels. Heterogeneity analysis shows that the BRI also significantly decreased the risk-taking levels of emerging advantageous industries, private firms, and small and medium-sized firms. Analysis of the mechanisms finds that the BRI affects the risk-taking levels of OFDI firms through environmental uncertainty. The aforementioned results indicate that the BRI’s risk aversion effect has played a leading role among OFDI firms. This study provides micro evidence to objectively evaluate the economic consequences of the BRI and in the improvement of government policy.