Mixed Ownership and Outward Foreign Direct Investment in China

Abstract

Mixed ownership enterprises (MOEs), the state-owned enterprises mixed up with private investors, is a phenomenon often seen in transition economies like China. How this kind of enterprises participate in international competition is a question unsatisfactorily answered. Integrating a private-government principal-principal conflict perspective, an institutional logic and an efficiency logic, this paper develops a theoretical model to explain the impact of mixed ownership on outward foreign direct investment (OFDI) decisions in the MOEs. We distinguish two types of OFDI decisions: one is whether or not to invest internationally, and the other is at what degree of the investment should be. Both of these decisions depend on the degree of mixed ownership under the moderating effects of time and shareholder characteristics. Using a Logit and a Tobit models separately and gathering 8,829 firm-year observations of non-financial, listed MOEs in China, we find that there is an inverted U-shaped relationship between the degree of mixed ownership and the OFDI propensity, while there is a U-shaped relationship between the degree of mixed ownership and the OFDI degree. In addition, the results provide a strong support for the moderating effects of time and shareholder characteristics on the OFDI propensity, but the moderating effects of shareholder characteristics on the OFDI degree are not statistically significant.