Trade Networks and Firm Value: Evidence from the US-China Trade War

69 Pages Posted: 26 Aug 2018 Last revised: 28 Sep 2019

See all articles by Yi Huang

Yi Huang

Graduate Institute of International and Development Studies

Chen Lin

The University of Hong Kong - Faculty of Business and Economics

Sibo Liu

The University of Hong Kong, Faculty of Business and Economics

Heiwai Tang

Johns Hopkins University - Paul H. Nitze School of Advanced International Studies (SAIS); CESIfo

Date Written: September 10, 2019

Abstract

This paper evaluates the financial implications of policy shocks for global production networks. We exploit various announcements of tariff hikes across a wide range of goods by both the US and Chinese governments in 2018-2019 as events, starting with the presidential referendum issued by the Trump administration on 22 March 2018, to study the impact of trade policy shocks on firms’ stock market performance. Using various novel datasets, we document significantly heterogeneous responses by firms to the announcements, depending on their direct and indirect exposure through global value chains to US-China trade. In particular, US firms that are more dependent on exports to and imports from China have lower stock returns and higher default risks around the announcement dates, while reduced import competition from China plays a limited role. Consistent patterns of stock price reactions are also found among Chinese firms. Two reverse experiments in 2019 further validate how the complex structure of global trade determines firms’ stock market reactions to policy shocks.

Keywords: firm value, event study, trade policy, offshoring, global value chains

JEL Classification: F10, G12, G14, O24

Suggested Citation

Huang, Yi and Lin, Chen and Liu, Sibo and Tang, Heiwai, Trade Networks and Firm Value: Evidence from the US-China Trade War (September 10, 2019). Available at SSRN: https://ssrn.com/abstract=3227972 or http://dx.doi.org/10.2139/ssrn.3227972

Yi Huang

Graduate Institute of International and Development Studies ( email )

PO Box 136
Geneva, CH-1211
Switzerland

Chen Lin

The University of Hong Kong - Faculty of Business and Economics ( email )

Pokfulam Road
Hong Kong
China

Sibo Liu

The University of Hong Kong, Faculty of Business and Economics ( email )

Pokfulam Road
Hong Kong
Hong Kong

Heiwai Tang (Contact Author)

Johns Hopkins University - Paul H. Nitze School of Advanced International Studies (SAIS) ( email )

1740 Massachusetts Avenue, NW
Washington, DC 20036-1984
United States

CESIfo ( email )

Poschinger Str. 5
Munich, DE-81679
Germany

Register to save articles to
your library

Register

Paper statistics

Downloads
1,499
Abstract Views
4,751
rank
11,873
PlumX Metrics