This article investigates the time-varying impact of sanctions on the corporate investment of non-financial listed firms in China during the period 2010–2021. The findings indicate that Chinese firms tend to reduce investment as sanctions intensify. Moreover, investment–cash flow sensitivity weakens under sanctions, with the decline being more pronounced for firms facing external financial constraints. This suggests that corporate investment is not only reduced by sanctions themselves but also becomes less dependent on internal cash flows, contrary to the pecking order theory typically observed in normal times. Such behavior reflects a “wait-and-see” strategy under uncertainty, as firms prioritize liquidity demands over new investments. Evidence of this mechanism is confirmed by the positive relationship between sanctions and net working capital. In addition, the analysis reveals that trade openness can mitigate the adverse effects of sanctions on corporate investment. The results remain robust under alternative measures of sanctions and after addressing potential endogeneity concerns.
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