Host‐country terrorism and outward foreign direct investment location choice of Chinese multinational firms: The moderating roles of state ownership and immigrant influence

Abstract

AbstractThis study employs a novel approach based on real options theory to explore how host‐country terrorism influences the location decisions of companies seeking to invest overseas. Using data for publicly listed firms in China that engaged in outward foreign direct investment (OFDI) between 2008 and 2020, this paper reveals that the severity of host‐country terrorism negatively affects the flow of OFDI from Chinese firms to that specific country. Notably, this adverse impact of host‐country terrorism on OFDI is less pronounced for state‐owned enterprises (SOEs) compared to non‐SOEs. Furthermore, the extent of immigrant presence in the host country acts as a mitigating factor against the negative influence of host‐country terrorism on firms' OFDI decisions. A significant contribution of this article is its pioneering examination of the intricate connection between extreme risks such as host‐country terrorism and the firm‐level OFDI location choices. The insights derived from this study can play a crucial role in assisting companies in bolstering their strategies for risk mitigation and security when venturing into foreign markets. Beyond its practical implications, the findings also hold theoretical value, offering a deeper understanding of how a country can maintain a resilient and diversified international economic order, fostering stable trade relationships, and facilitating high‐level engagement with the global economy.