Media Inclination and Outward Foreign Direct Investment: Evidence from Chinese Firms

• Published date: 01 November 2023
• Author: Beibei Hu,Qiao Luan,Xue Meng,Kai Wang
• Date: 01 November 2023
• DOI: http://doi.org/10.1111/cwe.12511

©2023 Institute of World Economics and Politics, Chinese Academy of Social Sciences

China & World Economy / 134–155, Vol. 31, No. 6, 2023

134

Media Inclination and Outward Foreign Direct

Investment: Evidence from Chinese Firms

Beibei Hu, Qiao Luan, Xue Meng, Kai Wang*

Abstract

Media inclinations, whether favorable or biased, play a pivotal role in shaping public

opinion. Sometimes, media coverage may unintentionally foster skepticism towards

foreign firms, which could create challenges for those companies when they enter new

markets. Based on a panel dataset from 2005 to 2020, this is one of the first studies to

investigate empirically the impact of media opinion on outward foreign direct investment

(OFDI) behaviors at the firm level. The media inclination index was constructed

according to the varying inclinations of media from different countries in their reporting

on each event. We examined the impact of media inclination on the investment value,

frequency, and number of industries. This study has revealed the following insights:

(i) Positive media coverage can stimulate the investment behavior of Chinese firms.

(ii) The heterogeneity analysis indicates that the promotional effect of media reporting

inclination on OFDI is more significant for state-owned firms from the investor’s

perspective and especially pronounced for firms in developing countries from the

investee’s perspective. (iii) Diplomatic visits and scientific research cooperation can

amplify the positive impact of media opinions on the OFDI behaviors of Chinese firms.

Keywords: heterogeneous analysis, media opinion, multinational firms, outward foreign

direct investment

JEL codes: F13, F21, F23

I. Introduction

In the current era of big data, characterized by the media industry’s rapid development,

it is increasingly convenient to obtain a diverse range of information. As the primary

*Beibei Hu, Assistant Professor, School of Business, Shanghai University of International Business and

Economics, China. Email: mazzystar2014@163.com; Qiao Luan, Postgraduate Student, School of Business,

Shanghai University of International Business and Economics, China. Email: qiaoluan820@163.com;

Xue Meng, Assistant Professor, Institute of Free Trade Zone, Shanghai University of Finance and Economics,

China. Email: mengxue@mail.shufe.edu.cn; Kai Wang (corresponding author), Associate Professor,

Collaborative Innovation Center of China Free Trade Zone, Shanghai University of Finance and Economics,

China. Email: wkai@mail.shufe.edu.cn. The authors acknowledge financial support from the National Natural

Science Foundation of China (No.72303146), Project of Shanghai Science and Technology Innovation Action

Plan 2022 (No. 22692105200), the National Social Science Major Fund of China (No. 22ZDA062), and the

Fundamental Research Funds for the Central Universities (No. 2020110308).

©2023 Institute of World Economics and Politics, Chinese Academy of Social Sciences

Media Inclination and Outward Foreign Direct Investment135

creators and disseminators of information, the varying inclinations of media reports play

vital roles in shaping and guiding public cognition and opinion by spreading news (Zhang

and Meadows, 2012). This affects the economic activities between countries (Soroka,

2003; Baum and Potter, 2008). Regarding international relations, positive media

reporting on a specific country not only reflects positive bilateral relations but also

helps enable specific countries to develop and maintain a positive local public image

and promotes economic cooperation. However, negative reporting may influence public

opinion against the specific country and damage the development of bilateral economic

activity. There is a strong likelihood that foreign firms will be considered as extensions

of their home countries’ governments owing to their obvious national identity, and the

public can fail to distinguish foreign firms’ interests from those of their home country’s

government (Nigh, 1986). When the host country’s media tend to be negative regarding

a firm’s home country, the negative public opinion against the firm’s home country is

more likely to cause retaliation and resistance, enhance business risks and uncertainties,

and further influence the decision making of firms’ outward foreign direct investment

(OFDI).

With the continuous advance of globalization, the implementation of the “going-

out” strategy, and the Belt and Road Initiative (BRI), China’s influence continues to

improve.1 Multinational firms from China are gradually emerging in the international

investment field, thus increasing the focus on international media. According to our

statistics of the Global Database of Events, Language, and Tone (GDELT) database,

from 2005 to 2020, the number of international media reports on China increased from

32,391 to 450,094 – an increase of nearly 14 times.2 The internationalization of Chinese

firms is deepening, with the OFDI value expanding yearly. In 2020, China’s total OFDI

reached US$1,537.1 trillion, ranking first in the world. However, along with the rapid

development of OFDI, Chinese firms are facing increasing investment entry barriers and

1The “going out” strategy, also known as the internationalized business strategy, encourages Chinese firms

to participate in international competition and cooperation through foreign direct investment (FDI), foreign

project contracting, and foreign labor cooperation. The Belt and Road Initiative (BRI), namely, the Silk Road

Economic Belt and the 21st-Century Maritime Silk Road, was proposed in 2013 and included 65 countries

in Asia, Europe, and Africa. As more countries became interested in the BRI, its definition grew broader.

The homepage of the BRI website launched by the Chinese government, by the end of 2021 showed that

149 countries have participated in the BRI, most of which are developing countries. Available from: https://

www.yidaiyilu.gov.cn/ (online; cited March 2023).

2The GDELT database is a project that reflects human social relationships in real time through the global news

media. It monitors broadcasts, print, and online news around the world in more than 100 languages in real

time and is updated every 15 minutes. It can identify people, places, organizations, themes, sources, emotions,

counts, quotes, images, and events in the news effectively. Its earliest historical record is from January 1979.

Available from: https://www.gdeltproject.org/ (online; cited March 2023).