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FIEs and the Transmission of Global Financial Uncertainty: Evidence from China

Published online by Cambridge University Press:  10 March 2022

Shujie Wu  and
Haichun Ye Open the ORCID record for Haichun Ye [Opens in a new window]
Shujie Wu
Affiliation:
Chinese University of Hong Kong Department of Economics wushujie@link.cuhk.edu.hk
Haichun Ye*
Affiliation:
Chinese University of Hong Kong (Shenzhen) School of Management and Economics
*
haichunye@gmail.com (corresponding author)
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Abstract

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This article provides micro-level evidence for the role of foreign-invested enterprises (FIEs) in the cross-border transmission of global financial uncertainty shocks. Using Chinese firm-level data, we find that rising uncertainty has a significantly larger contractionary effect on real investment for FIEs than their local counterparts. This effect is more pronounced for firms faced with greater investment irreversibility or financial constraints. The contractionary effect is mainly driven by downside uncertainty, whereas upside uncertainty is modestly expansionary. Similar effects are found for other firm-level performances. There is also a spillover effect to local private firms with FIEs concentrated in downstream sectors.

Type
Research Article
Information
Journal of Financial and Quantitative Analysis , Volume 58 , Issue 2 , March 2023 , pp. 777 - 804
Copyright
© The Author(s), 2022. Published by Cambridge University Press on behalf of the Michael G. Foster School of Business, University of Washington

Footnotes

We are grateful to the anonymous referee and the editor for their valuable comments and suggestions. We thank Mary Amiti, Beata Javorcik, Shu Lin, Jun Nie, Jian Wang, Bohui Zhang, and seminar participants at the Chinese University of Hong Kong and the Shanghai University of Finance and Economics for their helpful comments and discussions. All errors are our own.

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