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Home country environment and the downside risk implications of multinationality: Empirical evidence from Chinese SMEs

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  • Zhou, Chao

Abstract

According to real options theory, a global network built through multinational investments endows a firm with a series of options for future development. These options can enhance a firm’s operational flexibility, reducing its downside risk. This study aims to investigate the home country conditions necessary to achieve multinationality’s downside risk effect in Chinese small and medium-sized enterprises (SMEs). Using data from Chinese manufacturing SMEs from 2003 to 2021 and a Tobit regression model, this study finds that multinationality can significantly reduce the downside risk of Chinese SMEs. Moreover, the degree of home country economic openness and financial development can significantly enhance multinationality’s negative effect on downside risk. Further analysis suggests that the moderating effects of the home country environment are more prominent for state-owned firms than for privately-owned firms. Our findings emphasize the important role of a home country environment in achieving the value of multinationality’s flexibility.

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  • Zhou, Chao, 2023. "Home country environment and the downside risk implications of multinationality: Empirical evidence from Chinese SMEs," Journal of Multinational Financial Management, Elsevier, vol. 69(C).
    • Handle: RePEc:eee:mulfin:v:69:y:2023:i:c:s1042444x23000294
    DOI: 10.1016/j.mulfin.2023.100810
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    More about this item

    Keywords

    Multinationality; Downside risk; Real options; Home country environment; Economic openness; Financial development;
    All these keywords.

    JEL classification:

    • F23 - International Economics - - International Factor Movements and International Business - - - Multinational Firms; International Business
    • G28 - Financial Economics - - Financial Institutions and Services - - - Government Policy and Regulation
    • G32 - Financial Economics - - Corporate Finance and Governance - - - Financing Policy; Financial Risk and Risk Management; Capital and Ownership Structure; Value of Firms; Goodwill

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