Institutional Openness and Corporate Uncertainty Perception—Insights From Free Trade Zones in China

The supply chain risks associated with globalisation have been continuously increasing, leading to greater uncertainty for firms. Based on a staggered difference-in-differences (DID) model and the panel data from China's A-share listed companies from 2006 to 2022, this paper examines the impact of institutional openness policies, by the establishment of Free Trade Zones (FTZs) as a quasi-natural experiment, on corporate perceptions of economic uncertainty (CPEU). The results show that institutional openness significantly reduces CPEU. This finding remains robust after conducting parallel trend test, IV test, placebo test, PSM-DID, other estimation methods, and alternative dependent variable checks. Heterogeneity analysis reveals that large-scale, private, and capital-intensive firms are more sensitive to FTZs, with a notable reduction in CPEU. Besides, firms in underdeveloped regions are more likely to be affected by FTZs. Mechanism tests indicate that FTZs primarily decrease CPEU by easing financing constraints, promoting digital transition, and improving the business environment. In the face of globalisation and industrialisation, China's institutional openness policies play a crucial role in promoting sustainable regional economic development and enhancing international competitiveness, serving as an important model for developing countries to advance institutional reforms.