Dodging expropriation? The role of cash holdings as a firm-level driver of risky FDI location choices
研究美国制造业跨国公司的3500个对外直接投资项目，发现现金充裕的企业更不愿在腐败严重的国家投资，且这一效应在治理和监督机制强的企业中更明显。
Despite the higher expropriation risks associated with investing in corrupt countries, many multinational enterprises (MNEs) still choose to do so. The motivations for investing in such countries remain unclear. Using rich data on 3500 outward foreign direct investment (FDI) projects undertaken by U.S. manufacturing MNEs, we find that cash-rich firms are significantly less likely to locate FDI activities in more corrupt countries. We show that this effect is most pronounced in firms with stronger governance and monitoring regimes. Overall, our findings, which are robust to a battery of tests and treatment of a potential endogenous determination of cash holdings and FDI location decisions, suggest that liquidity influences firms’ perceived expropriation risk, with cash-rich firms optimally sheltering their FDI activities from more corrupt countries when expected expropriation costs outweigh the economic gains that can be easily exploited through FDI. These findings have important implications for research, practice, and policy regarding the FDI location decisions of MNEs. • We investigate expropriation risks and FDI location choice of US manufacturing MNEs. • High-cash firms are less likely to locate FDI activities in more corrupt countries. • Firms with stronger governance and monitoring regimes shy away from locating FDI to corrupt countries. • Liquidity affects firms’ perceived expropriation risk, with cash-rich firms optimally sheltering their FDI activities away from more corrupt countries when expected expropriation costs outweigh the economic gains easily exploitable through FDI. • Showcase important channels that explain MNEs’ investment location decisions.