The impact of management capability on foreign direct investment of listed companies

Abstract

Against the backdrop of rapid economic development in China, listed companies are increasingly active in their outward foreign direct investment activities, becoming an important part of their participation in global market competition. With the implementation of China's "going out" strategy and high-level opening-up policy, the scale of foreign direct investment by listed companies is rapidly expanding, the investment subjects are becoming increasingly diversified, the industrial coverage is becoming increasingly large-scale, and regional expansion is showing a trend of globalization. Foreign direct investment not only promotes the cultivation of new driving forces for China's foreign trade growth, but also has a profound impact on the business development of enterprises themselves. Existing research on the impact of outward foreign direct investment by listed companies mainly focuses on two perspectives: external and internal. Research on management's outward foreign direct investment by listed companies mostly focuses on executive characteristics and managerial heterogeneity. However, empirical testing has not yet been conducted on the relationship between management capabilities and outward foreign direct investment.

This article proposes research hypotheses based on high-order echelon theory and resource-based theory. Using panel data of non-financial companies listed on A-shares from 2007 to 2022, this study examines the impact of management capabilities on the outward foreign direct investment behavior and performance of listed companies through Probit and panel regression models. From the perspective of the disadvantages of outsiders and agency costs, this study examines the impact mechanism of management capabilities on the outwardforeign direct investment of listed companies. The results indicate that firstly, the ability of management will reduce the probability of listed companies making outwardforeign direct investment. Secondly, management capabilities can significantly improve the OFDI performance of listed companies. Thirdly, the management's ability can improve the OFDI performance of listed companies by suppressing the disadvantages of outsiders. Fourthly, highly capable management can improve the OFDI performance of listed companies by reducing agency costs. Further sample studies have found that there are differences in the impact of management capabilities on the OFDI performance of listed companies based on their property rights, investment destination countries, and regions.

Based on these findings, this study offers specific recommendations for both enterprises and the government. Firstly, when making OFDI decisions, listed companies should carefully consider policy factors, potential outsider disadvantages, and agency issues. They should implement talent management strategies, leveraging the advantages of management talent to enhance OFDI performance. Actively pursuing international development and stepping out, companies should intensify efforts to transform the effects of OFDI into new drivers of foreign trade growth. Secondly, the government should continuously improve the regulatory, guiding, and normative policy frameworks related to OFDI, providing better policy guarantees for enterprises' OFDI. Through policy guidance, the government should urge enterprises to engage in management innovation and upgrading, enhancing management capabilities, to better achieve high-level opening-up and facilitate the transition of foreign trade growth drivers.