Template-Type: ReDIF-Paper 1.0
Title: Hedging Along the Global Value Chain: Trade War and Firm Value
Author-Name: Liyan Han
Author-Email: hanly@buaa.cn
Author-Name: Lei Li
Author-Email: lei.li@uni-bonn.de
Author-Name: Huiyi Liao
Author-Email: zcjyhly@163.com
Author-Name: Libo Yin
Author-Email: yinlibowsxbb@126.com
Classification-JEL: F13, F14, G12, G14
Keywords: Trade War, Global Supply Chain, Firm Value


Abstract: We study the asset pricing implications of firms’ participation in the global supply chain. A
firm’s global sourcing strategy serves as an option to hedge its value against trade shocks.
Higher output tariffs increase firm value through reduced import competition, whereas higher
input tariffs decrease firm value through higher input costs. The negative effects of input
tariffs are more substantial for firms more reliant on foreign suppliers. We test the theoretical
predictions in the context of the US-China trade war and quantify the impact of trade protectionism on Chinese firm value. One standard deviation increase of input tariff reduces the daily stock return by 0.12 percent for firms importing inputs, more than offsetting the gains
from raising output tariffs by one standard deviation. The negative effect of input tariffs is
larger for firms with high import intensity and low import substitutability. The welfare loss
of the Chinese retaliatory tariffs was as much as $5.50 billion, 0.81% of the total value added
of Chinese listed firms.

Note: 
Length: 46
Creation-Date: 2024-04
Revision-Date: 
File-URL: https://www.crctr224.de/research/discussion-papers/archive/dp531
File-Format: application/pdf
Handle: RePEc:bon:boncrc:CRCTR224_2024_531