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Words vs. actions: International variation in the propensity to fulfil investment pledges in China

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  • Abigail S. Hornstein

    () (Department of Economics, Wesleyan University)

Abstract

We examine whether companies from certain countries are more likely to fulfil investment pledges. Using data on contracted and utilized FDI in China, we find that firms fulfil an average of 59% of their pledges within two years. The propensity to fulfil pledges is lower for firms from countries with greater uncertainty avoidance, power distance, and egalitarianism; higher if the source country is more traditional; and is unaffected by popular attitudes towards China. Prior literature has found that these cultural characteristics are associated with higher levels of utilized FDI. We extend this to show that announcements of planned corporate activity may be more reliable for firms from countries with certain cultures.

Suggested Citation

  • Abigail S. Hornstein, 2017. "Words vs. actions: International variation in the propensity to fulfil investment pledges in China," Wesleyan Economics Working Papers 2017-005, Wesleyan University, Department of Economics.
  • Handle: RePEc:wes:weswpa:2017-005
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    File URL: http://dx.doi.org/10.1016/j.chieco.2017.07.014
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    Keywords

    Foreign direct investment (FDI); China; Culture; Institutions; Policy;

    JEL classification:

    • F21 - International Economics - - International Factor Movements and International Business - - - International Investment; Long-Term Capital Movements
    • F23 - International Economics - - International Factor Movements and International Business - - - Multinational Firms; International Business
    • G18 - Financial Economics - - General Financial Markets - - - Government Policy and Regulation
    • G31 - Financial Economics - - Corporate Finance and Governance - - - Capital Budgeting; Fixed Investment and Inventory Studies
    • Z13 - Other Special Topics - - Cultural Economics - - - Economic Sociology; Economic Anthropology; Language; Social and Economic Stratification

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