Public procurement, institutional distance and cross-regional subsidiary location choice

This paper investigates the role of cross-regional public procurement in firms’ cross-regional investment choices. Based on the panel data of listed firm–province pairs from 2015 to 2022, we find that receiving cross-regional public procurement contracts significantly raises the probability of firms investing in subsidiaries in the procuring region. This phenomenon is more pronounced in more flexible joint ventures and when both purchasers and suppliers are from the western region, reflecting the strong institutional quality improvements in that area. Further analysis shows that cross-regional public procurement mitigates the negative effect of institutional distance on firms’ cross-regional investment, suggesting that such procurement can attract external firms by lowering institutional barriers to investment.