Does the geographic location of Blockholders matter? Evidence from Chinese Firms' cross-regional investment

Using manually collected geographic location data of both blockholders and subsidiaries of Chinese listed firms from 2003 to 2018, this paper explores the resource effect of nonlocal blockholders (NLBs) and their role in overcoming geographic distance barriers to corporate investment. We find strong evidence that firms with NLBs invest more in cross-provincial subsidiaries, particularly if NLBs are in the same industry as the firm, if they appoint executives to the firm, and if they are state-owned. Moreover, NLBs can help firms obtain more bank loans and government subsidies from the provinces where NLBs are located, thus promoting firms' cross-regional investment. A heterogeneity analysis indicates that the role of NLBs is strengthened if the target regions' institutional environment is unfriendly for firms' cross-regional investment but diminished if the firm has other social networks. Additionally, the cross-regional investment promoted by NLBs entails lower transaction costs and increases the total factor productivity of firms. Our paper expands the research on the heterogeneity and governance role of blockholders and provides new insights into the determinants of subsidiaries' location choices.