Abstract:

In recent years， the scale of outward foreign direct investment by China’s business group affiliates have continued to expand， but what kind of affiliates will be picked up within the business group to carry out foreign direct investment activities has been controversial. Chinese listed companies from 2008 to 2021 are used as a sample to explore the selection mechanism for outward foreign direct investment within business groups. The winner index is employed to gauge the performance of these affiliates. The research results show that business groups tend to follow a “winner picking” selection mechanism in the process of outward foreign direct investment. This means that affiliates with higher winner index scores have a greater probability， frequency， and scale of engaging in foreign direct investment. Taking into account the internal competition within business groups， the results reveal that the “winner picking” selection mechanism has a more pronounced promotional effect on affiliates that face more intense competition. In terms of principal-agent problem， the results suggest that the promotion effect of the “winner picking” selection mechanism is weaker for affiliates with higher corporate agency costs. Heterogeneity analysis demonstrates that the “winner picking” selection mechanism is more pronounced when affiliates are state-owned， employ cross-border mergers and acquisitions as their entry mode， and possess larger asset scales. From a theoretical perspective， it helps elucidate the micro-mechanisms governing the international strategic decision-making of business groups. It also expands relevant research on the internationalization behavior of business groups， drawing from principal-agent theory and competition theory. Practically， empirical evidence is provided to assist affiliates in implementing effective foreign direct investment strategies.

Key words: Business groups, outward foreign direct investment, selection mechanism, agency costs