Can Foreign Direct Investment (FDI) Help Enhance the Capital Structure Stability of Host Companies?: Evidence from China

More frequent adjustments in macroeconomic policies around the world after the 2008 global financial crisis and the increasing instability of global supply chains due to the ongoing COVID-19 pandemic have presented companies which have foreign direct investment (FDI) with great difficulty in stabilising capital structure. This article attempts to investigate the impacts of FDI on the capital structure stability of Chinese companies based on the firm-level panel data from 2005 to 2019. The empirical results show that FDI has significant negative indirect impacts on both the market value and book value of capital structure volatility of host companies by changing companies' financial constraint status. These impacts vary for firms of different ownership types and weakened after the 2008 global financial crisis.