Abstract
ODI by Chinese multinationals’ has grown rapidly in recent decades, and the ratio of M&A investment to aggregate ODI flow has demonstrated a “W” shape history, while the global ratio has demonstrated an “M” shape history. The recent theoretical progress in new century supplied a new perspective focused on firm heterogeneity such as the firm’s factor mobility to explain the diversity of international organization of production choices including the mode choice of ODI. Respectively, we supposed three hypothesizes based on theoretical discussion with combining the new-classical international direct investment theory and the frontier theoretical progress of international organization of production. We use micro level data for more than 2200 large scale ODI transactions by Chinese multinationals to study the relationship between cross-border factor mobility and ODI mode choice with a panel logit estimation. Our results testified all three hypothesizes supposed. Firstly, the results provide evidence that cross-border factor mobility affects the choice between Greenfield and M&A ODI. Secondly, the results also support the view that ODI mode choices are influenced by characteristics of host economies. The ease of registering property has a positive effect on the probability of choosing Greenfield ODI, while the ease of obtaining credit, enforcing contracts and trading across borders has a positive effect on the probability of choosing M&A. Finally, we find that the probability of choosing M&A increases when a multinational belongs to an industry that relies on obtaining natural resources or investment takes place in an economy with high labor costs. In general, our research shows that ODI mode choices by Chinese multinationals varies across host countries and industries due to the internal trade-off impact from the firm heterogeneity such as factor mobility. Moreover, at the end we discussed two short boards of our empirical process due to the data shortage problem and take a positive prospect for the following research.
Highlights
Outward direct investment (ODI) by Chinese multinationals’ has grown rapidly in recent decades
Naixi Liu: Influence of Factor Mobility on Chinese Multinationals’ ODI Mode Choice: Theoretical and Empirical Analysis role of firm heterogeneity using transaction level data; 2) the results provide significant empirical evidence in support of the hypothesis that cross-border factor mobility affects the choice between Greenfield and Mergers and Acquisitions (M&A) and shows how choices vary across industries; 3) we show how ODI mode choices vary across countries, indicating that cross-border factor mobility of capabilities is influenced by characteristics of host economies; and 4) we show that the probability of choosing M&A increases when a multinational belongs to an industry that relies on obtaining natural resources or when ODI is directed to a host economy with high labor costs
Based on 2,208 Chinese multinationals’ large scale ODI transactions, we examine the relationship between cross-border factor mobility and ODI mode choices
Summary
Outward direct investment (ODI) by Chinese multinationals’ has grown rapidly in recent decades. The ratio of M&A investment to aggregate ODI flow has demonstrated a “W” shape history, as opposed to the global ratio which has demonstrated an “M” shape history This raises the question as to why some Chinese multinationals prefer M&A while others prefer Greenfield investments. Firm heterogeneity was largely reflected in differences in total factor productivity and its potential impact on ODI patterns across industries and country-pairs. From this perspective, the question is whether cross-border factor mobility affects multinationals’ ODI mode choices. The organization of the remainder of the paper is as follows: following the presentation of some additional background information three hypothesizes are presented; this is followed by a description of the dataset; we describe the estimating equation and variables; based on the estimation results we discuss their implications; we summarize our conclusions and their contribution
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