Hometown-based business associations and cross-regional trade of firms——Evidence from China

This study examines whether hometown-based business associations (HBAs), as formal social networks, can help firms overcome cross-regional trade barriers. Using data on the top five customers of Chinese listed companies to measure firms’ cross-regional trade and leveraging the establishment of HBAs at different time points as an exogenous shock, we construct a multiple-period difference-in-differences model. Our findings reveal that HBAs significantly promote cross-regional trade for hometown firms, increasing their likelihood of entering the market in the province in which they operate by an average of 20.7%. Mechanism analysis suggests that HBAs facilitate cross-regional trade primarily by alleviating information constraints, mitigating market segmentation, and enhancing bilateral trust. Furthermore, HBAs serve as substitutes for informal social networks in facilitating interregional trade. Additional analysis shows that HBAs enhance the stability of firms’ cross-regional trade, further reinforcing their economic significance. Our study contributes to the literature on social networks that influence firms’ developmental constraints.