A leap of faith that echoes well? The value impact of Chinese firms starting up business overseas

Abstract

We investigate the impact of greenfield outward foreign direct investment (GODI) by Chinese firms on their subsequent Tobin's Q. Our findings indicate that Chinese listed companies from 2003 to 2019 generally experience a significantly positive boost in perceived firm value (or growth prospects) when engaging in overseas business start-ups (i.e., with no foreign partners) when compared to their inactive peers. The positive GODI effect is more prominent among privately owned enterprises vs. state-owned enterprises (SOEs). Our mechanism tests indicate that lowered effective tax rates and reduced illiquidity due to conducting greenfield ODI serve as the value-enhancing channels. Possibly driven by political objectives, SOEs tend to prioritize developing and Belt-Road countries as the destination for their greenfield overseas endeavors.