The value of home-country political connections in Chinese firms’ outward foreign direct investment

Over the past three decades, we have witnessed a remarkable surge in China's outward foreign direct investment (OFDI), supported by government incentives like tax breaks, financial aid, and diplomatic help. Previous research highlights Chinese firms benefit from political connections in their home country, which boost trust, legitimacy, and access to resources and favourable policies. Although it has been argued that political connections influence OFDI, empirical research has yielded inconsistent results. With the Chinese government's sustained commitment to OFDI, exemplified by initiatives such as the Belt and Road Initiative (BRI), there is scholarly value in further exploring the effects of home-country political connections on Chinese firms' OFDI.

This thesis includes three papers. Chapter 3 offers a meta-analysis of studies on internal corporate governance mechanisms, demonstrating that home-country political connections positively influence firms’ OFDI. Additionally, this effect is strengthened by state ownership while it is weakened by board independence. Chapter 4 identifies both positive and negative effects of political connections on OFDI propensity. Empirical results show that political-connection breadth (breadth) negatively affects OFDI propensity, whereas political-connection depth (depth) has a positive impact. State-owned enterprises (SOEs) benefit from depth, while board independence mitigates the negative impact of breadth. Chapter 5 examines the financial performance of Chinese firms' overseas subsidiaries, considering political-connection breadth and depth, with host-country state fragility as a moderator. Empirical findings suggest that breadth negatively affects financial performance, while depth has a positive impact, and state fragility alleviates the negative impact of breadth.