Interfirm Relationship and Business Performance

Monday, 24 October, 2016
In this paper published in The Quarterly Journal of Economics, Cai and Szeidl (2017) organized business associations for the owner-managers of randomly selected young Chinese fi rms to study the effect of business networks on firm performance. They randomized 2,800 fi rms into small groups whose managers held monthly meetings for one year, and into a "no-meetings" control group. They fi nd that: (1) The meetings increased firm revenue by 8.1 percent, and also signi ficantly increased profi t, 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. The authors 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.