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Host country risk, cybersecurity capacity, and China’s OFDI location choice

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  • Zhang, Wei
  • Cheng, Yihao

Abstract

Against the backdrop of global digitalization, this study integrates behavioral science perspectives to examine the relationship between host country risk, cybersecurity capacity, and China’s Outward Foreign Direct Investment (OFDI) location choices, focusing on the mediating role of cybersecurity and the impact of investors’ risk perception biases. Using panel data on China’s OFDI stock in 12 countries (2013–2022), we construct a mediating effect model and find that host country risk significantly inhibits OFDI, with cybersecurity capacity exerting a partial mediating effect. Specifically, the Worldwide Governance Indicators (WGI) dimensions of Voice and Accountability (21.1%), Government Effectiveness (25.8%), and Rule of Law (18.6%) show significant mediating effects, while other WGI dimensions do not. Further analysis reveals investors exhibit systematic biases, amplifying risk perception distortions. We recommend enterprises adopt multidimensional risk-cybersecurity assessment systems and debiasing training, and governments strengthen international digital governance and cybersecurity safeguards in bilateral investment treaties. This study bridges behavioral science and international investment theory, uncovering the interplay of institutional risk, cybersecurity, and cognitive biases in shaping global investment landscapes, offering new insights for cross-border investment decisions in the digital era.

Suggested Citation

  • Zhang, Wei & Cheng, Yihao, 2026. "Host country risk, cybersecurity capacity, and China’s OFDI location choice," Finance Research Letters, Elsevier, vol. 89(C).
    • Handle: RePEc:eee:finlet:v:89:y:2026:i:c:s154461232502584x
    DOI: 10.1016/j.frl.2025.109335
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