Interfirm Relationships and Business Performance*

Abstract

We organized business associations for the owner-managers of randomly selected young Chinese firms to study the effect of business networks on firm performance. We randomized 2,800 firms into small groups whose managers held monthly meetings for one year, and into a "no-meetings" control group. We find that: (1) The meetings increased firm revenue by 8.1 percent, and also significantly increased profit, factors, inputs, the number of partners, borrowing, and a management score; (2) These effects persisted one year after the conclusion of the meetings; and (3) Firms randomized to have better peers exhibited higher growth. We exploit additional interventions to document concrete channels. (4) Managers shared exogenous business-relevant information, particularly when they were not competitors, showing that the meetings facilitated learning from peers. (5) Managers created more business partnerships in the regular than in other one-time meetings, showing that the meetings improved supplier-client matching. (6) Firms whose managers discussed management, partners, or finance improved more in the associated domain, suggesting that the content of conversations shaped the nature of gains.

Female Entrepreneurs

“…One way to boost women's self-confidence and expand their business networks at the same time could be through entrepreneur support groups. A recent study of young firms in China found that firms randomly assigned to attend peer support meetings significantly increased sales, profits, employment, productivity, and the number of business partners (Cai and Szeidl, 2016). However, this study did not address whether the impacts of peer support groups were different by gender, which is an important area of future research.…”

Networking policy and firm performance

“…where y it is the dependent variable measuring the firms' performance in terms of total turnover growth for firm i at time t (Cai & Szeidl, 2018); treat i is a dummy variable taking value 1 if the firm signed a network contract in 2013 and 0 otherwise; time t is a dummy variable taking value 1 from the year of the treatment effect (2013) and 0 before; treat * time it is the interaction term between the treated and time variables, which is the main focal regressor in the DID model. ID it defines ID membership at the firm level, to control for firms' belonging to a district, as another networking alternative.…”

Microentrepreneurship in Developing Countries

“…These benefits might not be as large for microenterprises, however. Small firms do not benefit, at least not as much, from formal and informal meetings between owners (Cai and Szeidl, 2018;Fafchamps and Quinn, 2018). Microenterprises also do not seem to interact with each other enough for there to be spillover effects on other firms when one firm receives an inspection visit to verify that it is registered (de Andrade et al, 2013).…”