Lifting trade embargoes and corporate policies: Evidence from immigrant networks

Abstract

This paper uses the lifting of the trade embargo against Vietnam as an exogenous shock to product market competition to investigate the consequences for corporate policy. I show that immigrant networks formed before the embargo was lifted provide a channel through which competition affects corporate policies. I exploit the random allocation of Vietnamese refugees across the U.S. using a difference-in-differences method and an instrumental variable approach as identification strategies. I show that relative to corporations located in states with smaller shares of Vietnamese immigrants, those incorporated in states with higher shares of Vietnamese immigrants reduce investment and leverage, but increase research and development expenditures, and cash holdings after the embargo was lifted. The effect on capital expenditures only arises in the textile industry in which Vietnamese refugees are more involved and not in other industries. I show how immigrant networks can play a significant role in transmitting foreign competition shocks to businesses.