The impact of outward FDI on the performance of Chinese firms

- We investigate the effects on Chinese firms of OFDI into advanced European countries.
- We provide evidence supporting the view that OFDI so far have had a positive impact on domestic performance of Chinese firms.
- Productivity and the scales of domestic operations are enhanced by OFDI into advanced economies.
- Foreign acquisitions favour early access to intangible assets, but result in negative financial performance.
- Greenfield investments lead to greater complementarities between domestic and foreign activities.

Using new firm-level data from the Emerging Multinationals' Events and Networks DATAbase (EMENDATA), this paper investigates the effects on Chinese firms of Outward FDI (OFDI) into advanced European countries. Propensity score matching is combined with a difference-in-difference (DiD) estimator to reduce the problem of self-selection of treated firms in foreign markets, and to eliminate time-invariant and unobservable differences between those firms and the controls. The results provide robust evidence supporting the view that China's OFDI so far have had a positive impact on domestic activities in enhancing firms' productivity and scales of operation, measured by sales and employment. When we distinguish among investments on the basis of entry mode, accounting for endogeneity in the selection process, acquisitions facilitate early access to intangible assets, but are detrimental to financial performance, while greenfield investments have a stronger impact on the scale and productivity of Chinese multinationals investing in Europe.