The Impact of Foreign Entry Liberalization on Firms' Investment Efficiency

This study examines the impact of foreign entry liberalization on local firms' investment efficiency. Taking the implementation of the Negative List of Foreign Investment Entry as a policy shock, we construct a staggered difference-in-differences model based on data from China's A-share-listed firms between 2010 and 2022 for empirical analysis. Our findings found that (1) the liberalization of foreign investment entry reduces firms' investment efficiency (2) From the perspective of firm heterogeneity, liberalization of foreign investment entry exacerbates overinvestment in firms located in the central region, and firms facing high financing constraints. (3) The mechanism test shows that the inhibitory effect of foreign investment liberalization on the investment efficiency of enterprises comes from the intensification of the degree of market competition and the enhancement of environmental uncertainty. This study provides a new microscopic explanation for the mechanism of changes in China's enterprise investment efficiency from the perspective of foreign investment liberalization, which is of policy revelation significance for further optimizing the policy of introducing foreign investment and improving enterprise investment efficiency.