Foreign residency rights and corporate supplier concentration: Evidence from China

Abstract

Using data of Chinese non-state-owned firms, we investigate the impact of controlling person’s foreign residency rights on corporate supplier concentration. We find that a firm’s supplier concentration decreases when its controlling persons have foreign residency rights, particularly when the country of residence has no extradition agreements with China or has a weak institutional environment. The impact is more pronounced for firms in competitive industries, firms with larger separation of control rights and cashflow rights, firms with fewer independent directors, and firms with fewer analyst coverage. Studies on influencing channels show that foreign residency rights decrease corporate supplier concentration through an increase in corporate fraud and cash flow risks, and a decrease in corporate information disclosure quality and overseas investment efficiency. Finally, we find that the reduced corporate supplier concentration accompanied by foreign residency rights decreases corporate operating performance and increases operating risk. We also find that suppliers’ such reaction can increase their operating performance and decrease operating risk.