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Fleeing entrepreneurs: Foreign residency right and corporate risk-taking

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  • Meng, Qingbin
  • Li, Haitong
  • Chan, Kam C.

Abstract

We use a unique sample of Chinese firms to investigate the impact of the foreign residency right (FRR) of a firm’s controlling person on corporate risk-taking. Our findings suggest that the controlling person’s FRR is negatively associated with corporate risk-taking, and the effect of FRR on risk-taking is significantly reduced by Operation Fox Hunt (a program for actively pursuing fled criminals) or when the foreign country has an extradition treaty with China. Our results are robust to tests for endogeneity, alternative metrics of FRR, and risk-taking. We also find that severe financial constraints and a decline in R&D activities are the channels through which FRR reduces corporate risk-taking. Additional analyses show that the effect of FRR on corporate risk-taking is more pronounced when (a) controlling persons hold foreign nationality, (b) controlling persons are powerful or older, or (c) the investors of the firm face greater information asymmetry.

Suggested Citation

  • Meng, Qingbin & Li, Haitong & Chan, Kam C., 2023. "Fleeing entrepreneurs: Foreign residency right and corporate risk-taking," Research in International Business and Finance, Elsevier, vol. 65(C).
    • Handle: RePEc:eee:riibaf:v:65:y:2023:i:c:s0275531923000600
    DOI: 10.1016/j.ribaf.2023.101934
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    More about this item

    Keywords

    Foreign residency right; Corporate risk-taking; Emerging market; Financial constraints;
    All these keywords.

    JEL classification:

    • G30 - Financial Economics - - Corporate Finance and Governance - - - General
    • G32 - Financial Economics - - Corporate Finance and Governance - - - Financing Policy; Financial Risk and Risk Management; Capital and Ownership Structure; Value of Firms; Goodwill
    • M10 - Business Administration and Business Economics; Marketing; Accounting; Personnel Economics - - Business Administration - - - General
    • M20 - Business Administration and Business Economics; Marketing; Accounting; Personnel Economics - - Business Economics - - - General

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