Essays on foreign acquisition, multiproduct firms and international trade: evidence from China

Zhang, Rhea Yuzhu (2020) Essays on foreign acquisition, multiproduct firms and international trade: evidence from China. PhD thesis, University of Nottingham.

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Abstract

Based upon the context of China getting integrated into the global economy, this thesis explores three distinct research questions concerning the effects of foreign direct investment (FDI) on firms' export and import profiles as well as the relationship between working capital management and export participation.

Chapter One introduces the institutional background and the outline for the whole thesis. We describe the distinctive features of China's changing regulatory environment and demonstrate how relevant policies have shaped the patterns of FDI in China. Moreover, we briefly introduce the evolution of FDI-related policies in the three key phases of China's reform and opening up and then evaluate how changes in FDI policy shape the current status of foreign investment. Finally, we present an overview of our three main chapters.

Chapter Two examines whether a causal relationship exists between foreign ownership and firms' export profiles. We use the matched firm transaction data to track down changes in firm ownership and export profiles and combine the propensity score matching with the difference-in-differences technique to identify a causal relationship. Our results show that foreign ownership causes firms to become ``meaner and leaner". After foreign acquisition, both the number of products and the number of export destination countries have decreased. In addition, the acquired firms tend to concentrate sales on their top-sold products and top-exported destinations.

Chapter Three investigates whether a casual link exists between foreign acquisition and firms' import profiles. We use the same databases as in Chapter Two, with the focus on importers only, to measure changes in firm ownership structure and import profiles. We apply the augmented inverse probability weighting method to construct a pseudo-randomised sample and then use the difference-in-differences method to eliminate the time invariant unobservables. We also compare the effects of minority acquisitions with that of majority acquisitions on firm's import profiles. Overall, the results demonstrate a causal relationship between foreign acquisition and firms' import profiles. In addition, we find that different levels of foreign ownership have heterogeneous effects with minority acquired firms showing a ``meaner and leaner" import profile restructuring while majority acquired firms showing an expansion import profile restructuring.

In Chapter Four, we explore the relationship between firm-level working capital management and firms' export participation. We particularly look at the role of cash conversion cycle (CCC) in firms' export behaviours. With data from the \textit{Annual Survey of Industrial Firms (ASIF)}, we test whether a causal relationship exists between working capital management and the probability for a firm to become an exporter using the binary choice model with fixed effects (FE Logit model). We then use the Tobit model to estimate the effects of CCC on firm's export intensity. In order to estimate CCC's effects on other firm performance, we apply firm fixed effects to eliminate the time invariant unobservables. Although there is no significant finding showing a casual link between working capital management and the probability of firms' becoming exporters, the results suggest a positive relationship between better working capital management and the increase in firms' export shares. In addition, a shorter CCC can lead to the increase in firms' total and domestic sales. We also find a positive relationship between working capital management and firm performance in terms of return on total assets, income margin and asset turnover.

Chapter Five is a summary of the research findings and points out future research directions.

Item Type: Thesis (University of Nottingham only) (PhD)
Supervisors: Girma, Sourafel
Yu, Zhihong
Keywords: Foreign acquisition, FDI, Working capital management, Cash conversion cycle, China, International Trade, Export, Import
Subjects: H Social sciences > HG Finance
Faculties/Schools: UK Campuses > Faculty of Social Sciences, Law and Education > School of Economics
Item ID: 60089
Depositing User: Zhang, Yuzhu
Date Deposited: 17 Aug 2020 07:57
Last Modified: 17 Aug 2020 08:00
URI: http://eprints.nottingham.ac.uk/id/eprint/60089

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