Does dialect similarity affect customer stability: Evidence from corporate trust and friction

Abstract

A stable customer relationship is a key factor for the long-term development of an enterprise and can convey a positive signal to the stakeholders of the capital market. This paper empirically examines the impact of dialect similarity on customer stability by selecting a sample of Chinese A-share listed companies from 2007 to 2022. Our findings reveal that dialect similarity is positively correlated with customer stability, suggesting that an increase in dialect similarity enhances customer relationship stability. Moreover, dialect similarity positively affects customer stability mainly through two channels, including increasing business trust and reducing transaction friction. Furthermore, the effect of dialect similarity on customer stability is more significant in private enterprises, regions with poorer supply chain operating environments, and provinces with lower levels of social trust. In conclusion, this study adds to the literature on the economic consequences of informal systems of culture from a new perspective and provides empirical evidence for policymakers and capital market participants to analyze the economic and social impacts of cultural traditions.