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The uncertainty of RMB exchange rate expectation and foreign investment: Evidence from Cross-border M&As in China

Author

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  • Si, Deng-Kui
  • Li, Hong-Xue
  • Hu, Debao
  • Li, Xiao-Lin

Abstract

This paper investigates the causal effect of the RMB exchange rate expectation uncertainty on corporate cross-border mergers and acquisitions (M&As) using China's A-share listed firms from 2005 to 2022. The results show that the increasing RMB exchange rate expectation uncertainty significantly promotes corporate cross-border M&As. A one-unit standard deviation of the RMB exchange rate expectation is associated with a 0.140-unit standard deviation increase in corporate cross-border M&As. The results are robust for replacing core variables, changing estimation methods, model setting, and addressing endogenous problems. The above effect is more pronounced for firms engaging in discontinuous M&As, partial M&As, higher operational and exchange risks, lower financing constraints, and firms located in Eastern regions. We also find that increased risk-taking capacity and greater market competition are essential channels through which RMB exchange rate expectation uncertainty promotes corporate cross-border M&As. This paper offers a fresh insight into the role of exchange rate expectations in promoting cross-border M&A activities and optimizing resource allocation in international markets.

Suggested Citation

  • Si, Deng-Kui & Li, Hong-Xue & Hu, Debao & Li, Xiao-Lin, 2024. "The uncertainty of RMB exchange rate expectation and foreign investment: Evidence from Cross-border M&As in China," Pacific-Basin Finance Journal, Elsevier, vol. 83(C).
    • Handle: RePEc:eee:pacfin:v:83:y:2024:i:c:s0927538x23002846
    DOI: 10.1016/j.pacfin.2023.102213
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