The impacts of country risk and cultural distance on transnational equity investments

Xu Yuehua (Lingnan College, Zhongshan University, Guangzhou, China)
Hu Songhua (Lingnan College, Zhongshan University, Guangzhou, China)
Fan Xu'ang (Lingnan College, Zhongshan University, Guangzhou, China)

Chinese Management Studies

ISSN: 1750-614X

Publication date: 7 August 2009



The purpose of this paper is to clarify the influence of country risk (CR) and cultural distance (CD) on transnational equity investments. It also tries to find out the international equity investment patterns of enterprises from developing countries like China.


From the perspectives of internalization theory, transaction cost theory, etc. this paper tries to explain the relationships between country‐level factors and transnational investment. Based on the data collected from overseas listed companies, it also empirically analyses the impacts of CR and CD on Chinese enterprises' ownership pattern in transnational equity investment.


The empirical results of this paper indicate that both the risk of host country and CD between host country and home country have significant and negative impacts on the level of ownership equity, but insignificant impacts on ownership status.

Research limitations/implications

As there are still some doubts about the existence of country culture, especially when dealing with a huge country like China, the use of Hofstede's instrument may be one of the limitations of this paper. Also, by focusing on Chinese enterprises, the research results may lack generalisability. Therefore, researchers are encouraged to test the proposed propositions when they study enterprises from other developing countries.

Practical implications

The paper sheds light on international investment activities of Chinese enterprises, and also provides insights for the decision making on equity arrangement in transnational investment.


This paper is one of the first to analyse the international equity investment activities of Chinese enterprises and it provides new evidence on how the country‐level factors influence transnational equity investment decisions.



Yuehua, X., Songhua, H. and Xu'ang, F. (2009), "The impacts of country risk and cultural distance on transnational equity investments", Chinese Management Studies, Vol. 3 No. 3, pp. 235-248.

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