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Determinants of Chinese energy OFDI location decisions and entry failure risk: The roles of public diplomacy endeavors and firm investment strategies

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  • Huang, Youxing
  • Yang, Yu

Abstract

Identifying the key factors that affect the location decision and entry failure risk of Chinese enterprises' outward foreign direct investment (OFDI) is an issue of great significance both in theory and practice. Using an original and unique project-level panel dataset from 2005 to 2018, this study explores the determinants of OFDI location decisions and entry failure risk in the overseas energy sector undertaken by Chinese enterprises. The results demonstrate strong evidence that the Chinese public diplomacy endeavors stimulate energy OFDI decisions conducted by Chinese firms in terms of both investment tendency and magnitude. By contrast, most macroeconomic features of host countries are not verified as determinants of energy OFDI. Specifically, high-level formal strategic partnerships and the current informal bilateral friendly relations are crucial for decisions. More importantly, the OFDI-strategy test shows that the horizontal and conglomerate OFDI as well as the financial alliance enable a reduction in OFDI entry failure risk, whereas more frustrations are incurred when firms engage in vertical OFDI and cross-border mergers and acquisitions (CM&A). Additionally, the entry failure risk varies substantially with the sectors of both Chinese parent firms and overseas affiliates. These results are robust after addressing the potential endogeneity and sample selection bias, which provide the necessary evidence for the optimization of China's public diplomacy policies and firm strategies related with energy OFDI.

Suggested Citation

  • Huang, Youxing & Yang, Yu, 2023. "Determinants of Chinese energy OFDI location decisions and entry failure risk: The roles of public diplomacy endeavors and firm investment strategies," Energy, Elsevier, vol. 267(C).
    • Handle: RePEc:eee:energy:v:267:y:2023:i:c:s0360544222034570
    DOI: 10.1016/j.energy.2022.126570
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    More about this item

    Keywords

    Outward foreign direct investment; Energy; Determinant; Failure risk; China;
    All these keywords.

    JEL classification:

    • F21 - International Economics - - International Factor Movements and International Business - - - International Investment; Long-Term Capital Movements
    • F23 - International Economics - - International Factor Movements and International Business - - - Multinational Firms; International Business
    • Q40 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Energy - - - General

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