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Dr. Chung-Yu Hung
Senior Lecturer of Accounting Department
The University of Melbourne

We investigate how travel distance relates to corporate investment policy (i.e., investment location and ownership structure choices), using a setting of Taiwanese firms’ investment in mainland China. We measure travel distance as travel time between parent firms (in Taiwan) and subsidiaries (in mainland China). Our identification strategy relates to the deregulation of flight routes between Taiwan and mainland China, which allows direct flights to each Chinese province. This deregulation results in variations in travel distance across time and enables a difference-indifference research design. Our analyses show that greater travel distance is associated with a lower investment likelihood and a lower likelihood of whole ownership (i.e., 100% ownership) versus shared ownership (i.e., less than 100% ownership). We also find a negative association between travel distance and investment performance. Our findings suggest that travel distance limits parent firms’ access to local information and compromise their ability to establish informal controls in subsidiaries.