The barrier to inter-provincial capital flows has become an important obstacle to building a unified national market, and the widespread phenomenon of institutional cross-regional shareholding provides the possibility to enhance cross-regional M&A to promote capital flows across regions. However, based on the perspective of collusive monopoly, institutional cross-regional shareholding may also prevent enterprises from cross-regional M&A to maintain monopoly profits, which becomes an implicit bottleneck in the process of building a unified national market. Therefore, in order to clarify the role of institutional cross-regional shareholding on the barrier to inter-provincial capital flows, this paper studies from the perspective of cross-regional M&A and develops a theoretical model. Within the model, the process of institutional cross-regional shareholding affecting the remote investment decision of enterprises in monopoly market and competitive market is described respectively. Then, using the data from cross-regional M&A of listed companies from 2005 to 2020, this paper empirically examines the mechanism by which institutional cross-regional shareholding affects the constraints on cross-provincial capital flows. Finally, this paper further explores the influence mechanism of institutional cross-regional shareholding on cross-regional M&A from three aspects: impact channel, mitigation method, and economic consequences. The conclusions show that institutional inter-regional shareholding reduces the likelihood of cross-regional M&A when the monopoly degree of the target market is high, increases the barrier to inter-provincial capital flows, and serves as a market segmentation mechanism. However, when the monopoly degree of the target market is low, institutional inter-regional shareholding boosts the likelihood of cross-regional M&A, lowers the barrier to inter-provincial capital flows, and serves as a unified market. Further study reveals that institutional cross-regional shareholding strengthens the barrier to inter-provincial capital flows through the threat of withdrawal when the target market has a high degree of monopoly, but the negative impact can be mitigated by the information transparency of the acquirer and the experience of cross-regional M&A. Additionally, institutional inter-regional shareholding lowers the barrier to inter-provincial capital flows by lowering transaction costs when the monopoly degree of the target market is low, which can serve as a guarantee for the long-term performance improvement of cross-regional M&A. Based on the different target market structure, this paper studies the governance process of institutional inter-regional shareholding involved in cross-regional M&A from both theoretical and empirical aspects. It not only offers empirical support for identifying the micro-influence mechanism of cross-provincial capital flows, but also has significant implications for advising institutional investors on how to encourage inter-regional capital flows and rev up the internal forces that drive domestic circulation.