Does the Geographic Location of Blockholder Matter? Evidence from Firms' Cross-Regional Investment Decisions in China

Using hand-collected geographic location data of both blockholders and subsidiaries of all publicly listed firms in China from 2003 to 2019, this paper examines the impact of non-local blockholders (NLBs) on cross-regional investment of firms. We propose that NLBs with information advantage and social network in different places can bring resource effect, thus help firms break through the geographic distance constraints. Consistent with our expectation, we find that firms with NLBs invest in more cross-provincial subsidiaries than their non-NLBs counterparts do, and this effect is more pronounced in regions with severe market segmentation, and when the number and proportion of NLBs are larger. In addition, firms are inclined to invest in the regions the same with their NLBs location, and when NLBs come from regions with poor institutional environment and strong local protectionism, firms would invest more in these regions. Furthermore, we find that NLBs promote firms to hire more non-local independent directors and to obtain more loans from non-local banks, so as to help firms invest in more non-local subsidiaries. Finally, we show that the cross-regional investment promoted by NLBs can realize the integration of resources in other places, which is manifested in higher total factor productivity of firms and better operating performance of non-local subsidiaries. Our findings still hold after accounting for endogeneity concerns and an array of robustness checks. Overall, this paper not only expands the research on the heterogeneity and resource effects of blockholders, but also provide new insights to the determinations of subsidiaries location choice and for the study of geographic distance