Does Friend-Shoring of FDI Mitigate Firm Bankruptcy Risk? Evidence from Asia–Pacific

This paper examines whether friend-shoring of FDI helps to mitigate firm bankruptcy risk. To investigate this, we collect a sample of 18,419 firms from 10 Asia–Pacific countries between 2019 and 2023. Friend-shoring of FDI denotes the US FDI coming into Asia–Pacific countries that are allied with the United States. We find that (i) an increase in FDI from the US increases firm bankruptcy risk in an allied country more than that in a non-allied country; (ii) when world uncertainty escalates, US allies are able to significantly mitigate firm bankruptcy risk because direct investments from the US promote confidence; and (iii) firm bankruptcy risk in US non-allies increases further if world uncertainty rises. This study has important implications for policymakers, economists, investors and corporate managers.