Financial Development and Foreign Direct Investment Destination Choice: The Moderating Role of Business Group

Abstract

Abstract: The factors that affect the choice of foreign direct investment (FDI) destinations have been an academic focus for decades. This paper analyzes the effect of host country's financial development on FDI destination choice, and the moderating roles of business group and home country's financial development. Based on the sample of FDI projects launched by Chinese listed companies during 2004 to 2017, our empirical results reveal that:(1) host country's financial development has a positive effect on Chinese firm's FDI destination choice; (2) firms affiliated to a business group can get better access to critical resources, and such affiliation negatively moderates the relationship between host country's financial development and FDI destination choice; (3) China's financial development can substitute for the function of business group to some extent. There is a positive three-way interaction effect among host country's financial development, home country's financial development and business group affiliation.

Key words: foreign direct investment, financial development, business group, destination choice

Chen Xuchang, Lv Ping. Financial Development and Foreign Direct Investment Destination Choice: The Moderating Role of Business Group[J]. Management Review, 2023, 35(11): 26-35.

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