Does policy uncertainty travel across borders? Evidence from MNC subsidiary investment decisions

Xi Zhou, Min Xiao, Huiying Wu, Jiaxing You

Research output: Contribution to journalArticlepeer-review

Abstract

Using a large-scale proprietary data set from China, we examine the cross-border transmission of policy uncertainty within multinational corporations (MNCs). Our results show that policy uncertainty in MNCs’ home countries negatively affects the capital investment of their foreign subsidiaries. Our analyses of cross-sectional heterogeneity reveal that the effect is strengthened by subsidiary-level investment irreversibility and the dependence of subsidiaries on parent firms, and weakened by bilateral meetings and psychic closeness between the home and host countries. Together these findings suggest that policy uncertainty travels across borders and has a spillover effect on foreign subsidiary investment.

Original languageEnglish
Article number107195
Number of pages23
JournalInternational Journal of Banking and Finance
Volume163
DOIs
Publication statusPublished - Jun 2024

Bibliographical note

Publisher Copyright:
© 2024 Elsevier B.V.

Keywords

  • Capital investment
  • Foreign subsidiary
  • Multinational corporation
  • Policy uncertainty
  • Within-MNC transmission

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