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Expansion or retrenchment: Corporate investment reactions to external security risks

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Listed:
  • Zhang, Hailiang
  • Li, Yao
  • Wang, Haijun
  • Yin, Lei

Abstract

Intensifying power competition has raised the need to understand how corporations react to international security dynamic challenges. Using data on Chinese A-share listed companies from 2012 to 2022, we developed an index to measure external security risk and empirically study the influence of external security risks on corporate investment behavior. These findings indicate that corporations reduce real investment and increase financial asset allocation when external security risk is high. Meanwhile, corporations tend to expand overseas investments to enhance international diversification and turn toward low-risk regions. The technology and strategic emerging sectors exhibit a higher preference for real investment during periods of high external security risk. Furthermore, entrepreneurs’ family-nation sentiment can inhibit corporate financial investment and promote real investment. This study contributes to understanding how the external security environment shapes corporate investment strategies. It also demonstrates how entrepreneurial spirit can influence corporate investment decisions during periods of high security risk.

Suggested Citation

  • Zhang, Hailiang & Li, Yao & Wang, Haijun & Yin, Lei, 2025. "Expansion or retrenchment: Corporate investment reactions to external security risks," Research in International Business and Finance, Elsevier, vol. 73(PA).
    • Handle: RePEc:eee:riibaf:v:73:y:2025:i:pa:s027553192400388x
    DOI: 10.1016/j.ribaf.2024.102595
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    More about this item

    Keywords

    External security risk; Investment behavior; Entrepreneurs’ family-nation sentiment; Great power competition; China;
    All these keywords.

    JEL classification:

    • F21 - International Economics - - International Factor Movements and International Business - - - International Investment; Long-Term Capital Movements
    • F50 - International Economics - - International Relations, National Security, and International Political Economy - - - General
    • G30 - Financial Economics - - Corporate Finance and Governance - - - General

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