Financial crisis of 2008 and outward foreign investments from China and India

Based on a cross-industry panel of 510 non-financial Indian and Chinese firms during the period 2005-2015, we argue and show that Chinese firms with resource and asset seeking motives and Indian firms with market-seeking motives suffered differently from the financial crisis of 2008. Specifically, Indian firms that faced financial market imperfections domestically and market contraction externally had to cut back on outward investments as markets shrank and sales growth dampened. In contrast, the fortunes of Chinese firms that relied on debt finance to seek out international assets rose. Not only had investment targets become cheaper after the financial crisis, but the reliance on leverage as the instrument of finance also inured Chinese firms to the fluctuations of stock markets and the other financial implications of the crisis. Consequently, Chinese and Indian outward investment paths that looked so similar before 2008 began to diverge rapidly