Do local shareholders increase corporate value

Abstract

This paper introduces the geographical location characteristics of shareholders to study the governance role of shareholders and explores the impact of local shareholders on corporate value from the perspective of related-party transactions (RPTs). We manually collect information on the geographical location of the top ten shareholders of A-share listed companies in China over the period 2010-2020 and screen the data on local RPTs of the companies to empirically test the question under study. The study finds that the higher proportion and controlling right of local shareholders in a listed firm, the more likely it is to have local RPTs. In addition, using the mediation effect test, this paper finds that there is a partial mediation effect between local shareholders and corporate value, the higher the proportion of local shareholders, the stronger the effect of using local RPTs to increase corporate value, which is manifested in the "propping" of RPTs. Further analysis finds that the degree of regional marketization, financing constraints, and the nature of property rights can have a heterogeneous impact on the local RPTs of local shareholders and companies.