Outward FDI, absorptive capacity and government intervention on innovation performance of MNEs --an empirical analysis based on Chinese listed companies

Abstract

ABSTRACT

As China's competitiveness in the worldwide market improves, it is not only able to draw foreign funds into the country, but it is also becoming the leading source of emerging foreign direct investment. In the existing research, taking China as the research object, some discussions have been carried out around "outward foreign direct investment" (OFDI). Differ from the previous literature focusing on the effect of OFDI on innovation performance from a single dimension, this study focus on a micro perspective to the heterogeneity of multinational enterprises (MNEs) outward foreign direct investment strategy, considering the different dimensions of OFDI (depth, breadth, diversity). This study also integrates absorptive capacity and government intervention, which are two possible reasons that may influence the innovation performance of MNEs. The empirical results show that the depth of OFDI, the breadth of OFDI and the diversity of OFDI all have a significant positive impact on the innovation performance. The absorptive capacity of the parent company plays an important intermediary role, the stronger the absorptive capacity of an enterprise, the more it can promote the impact of OFDI on innovation performance. Moreover, local government intervention has a negative moderating effect on OFDI on innovation performance. The research of this paper expands the theoretical boundary of the impact of OFDI on the innovation performance of enterprises, and emphasizes that enterprises conducting foreign direct investment should better strengthen their own knowledge absorptive capacity and notice the negative impact of local government intervention. By investigating the effect of the interplay between different OFDI strategies, absorptive capacity and government intervention on MNEs’ innovation performance, this study enriches the research on the relationships between OFDI strategies and innovation performance of MNEs in the Chinese context.