HOW ENTERPRISE EQUITY INCENTIVES PROMOTE EXPLORATORY OUTWARD DIRECT FOREIGN INVESTMENT IN EMERGING COUNTRIES: EVIDENCE FROM LISTED COMPANIES IN CHINA

Enterprise equity incentives can promote exploratory outward foreign direct investment (E-OFDI) in emerging countries. This proposition is based on the principles of the principal-agent theory and risk management theory. By analyzing A-share companies listed on the Shanghai and Shenzhen stock exchanges from 2005 to 2015, we examine the effect of equity incentives on their E-OFDI activities. The results indicate that equity incentives generally increase the propensity and frequency of E-OFDI. Specifically, in terms of investment modes, equity incentives are significantly more effective in promoting greenfield investments than in cross-border mergers and acquisitions. Among the equity incentive modes, restricted stock is more conducive to E-OFDI than stock options. Furthermore, the positive impact of equity incentives is more pronounced for non-state-owned enterprises, companies facing greater financing constraints, and companies located in coastal regions. These results suggest that emerging countries should use and refine managerial incentive mechanisms to encourage E-OFDI, and thereby benefit from the risks and opportunities of the global economy.