An Empirical Study On Arbitrage Motivation Of Foreign Direct Investment In Mineral Resources Enterprises

Since the strategy of "going out" was put forward and has been speeding up, Chinese outward foreign direct investment (OFDI) has attained many achievements. More attention has been paid to allocate resources on a global scale by Chinese enterprises. As the pioneer of Chinese OFDI, the mineral resource enterprises have made great contributions to the economic development, to resource demand and security, and also to smoothing the fluctuation of domestic price. In recent years, however, the failure of foreign investment or merger and acquisition by Chinese mineral resource enterprises happened frequently. The losses focused on the varieties, space and time of the investment. What’s more, their investment activities often faced with the problems, such as the political interference from the host countries or the weak competitive ability of themselves. These problems have become the bottleneck for the development of Chinese mineral resource enterprises’OFDI, and they deserve us to think the causes of these problems and how to decode the dilemma. Chinese mineral resource enterprises’OFDI carry domestic policy need and the development of enterprise need, and at the same time, they have to take the asset price fluctuations into consideration. Combined with the strategic, commercial and financial characteristics of mineral resources, the decision-making mechanism of investment is complex. In fact, the motivation of the investment plays a significant role on the investment decision and results. Not only has the slowdown development of the entity economy and the capital market volatility make mineral resource enterprises expose to the risk, so it is necessary to find deeper reasons from the perspective of motivation, which consider the characteristics of mineral resources.Based on the analysis of the present situation of Chinese mineral resource enterprises OFDI, this paper put forward that Chinese mineral resource enterprises’OFDI drives by arbitrage motivations, which can be used to explain those problems above. There are three kinds of arbitrage motivations. The first is institutional arbitrage, which causes by the convenience of the free market or the supervisor vacancy and the system advantages of the state-owned enterprises. The second is market arbitrage, which caused by the foreign asset depreciation resulting from the external economic environment. The third is term arbitrage, which comes from the differences of price volatility rate between the domestic and foreign markets. These arbitrage motivations influence the investment decision-making of Chinese mineral resource enterprises by changing the conditions, and ultimately contribute to mineral resource enterprises’OFDI. When the enterprises ignore the development need of themselves and the entity economy and give the arbitrage a larger decision weights, it will produce a series of unstable factors, and lead to the failure of OFDI and increase the investment risk. Presented in arbitrage motivations, a framework of how the arbitrage motivations influence the decision-making of Chinese mineral resource enterprises was built up based on the real option theory. Then according to the Chinese mineral resource enterprises’OFDI (or quasi) of 374 project data during 2005-2013, a measurement model was used to validate the existence of arbitrage motivations, which also analyzed the relationship between arbitrage motivations and the motivation of seeking natural resource. Then this paper studied the influences caused by arbitrage motivations between the state-owned enterprises and the private enterprises. The empirical results validate the existence of arbitrage motivations, and show that different kinds of arbitrage motivations have different effects on the motivation of seeking natural resource. On the whole, they tend to weaken the latter. Compared to the private enterprises, the mineral resource state-owned enterprises are more easily driven by institutional arbitrage and term arbitrage, while the private enterprises are more susceptible to market arbitrage. Finally, based on the theory and empirical analysis, this paper put forward the countermeasures and suggestions, in order to guide the healthy development of Chinese mineral resource enterprises’OFDI.