Does Outward Foreign Direct Investment Increase Debt Ratio? Firm-level Evidence from China

Abstract Whether outward foreign direct investment (OFDI) will increase an enterprise's debt ratioremainstobeinvestigated. Using the firm-level data, this study explores the effect of OFDI on an enterprise's debt ratio by using a combination of the propensity score matching (PSM) and difference-in-differences (DID) strategies. Moreover, we investigate the influential mechanism and heterogeneous effects of OFDI on debt ratio.The results show thatthe technological innovation effect is offset by the investment substitution effect, leading to an overall nonsignificant impact on the debt ratio. However, the impact of OFDI on an enterprise's debt ratio demonstratesstrongheterogeneity in the developmental degree of investment destinations and in the investment modes. The impacts on debt ratio by brownfield investment andthe OFDI destined for less developed countries are not apparent.In comparison, the greenfield investment andthe OFDI destined for developed countries lead to anincreased debt ratio.