Abstract
We investigate how international trade shocks affect corporate investment efficiency. Utilizing a novel pairwise firm-product level dataset in China, we find that the investment efficiency of target firms significantly improves following the implementation of trade defense instruments (TDIs), including antidumping, countervailing, and safeguard measures. The reduction in free cash flow and heightened competition triggered by TDIs discourage overinvestment, particularly in firms more prone to overinvestment and those operating in industries with lower ex-ante competition. Moreover, the efficiency-enhancing effect is more pronounced in firms subject to stricter penalties and higher-value targeted products. Taken together, these findings suggest that Chinese target firms respond to international trade shocks by altering their investment strategies and improving efficiency.
| Original language | English |
|---|---|
| Article number | 102795 |
| Journal | Journal of Corporate Finance |
| Volume | 93 |
| Early online date | 11 Apr 2025 |
| DOIs | |
| Publication status | E-pub ahead of print - 11 Apr 2025 |
Data Availability Statement
The authors do not have permission to share data.Keywords
- Free cash flow
- Industrial competition
- Investment efficiency
- Overinvestment
- Trade shocks
ASJC Scopus subject areas
- Business and International Management
- Finance
- Economics and Econometrics
- Strategy and Management