How do social networks help supplier firms build cooperative customer relationships? Evidence from hometown-based business associations in China

Using the multi-period DID method, this paper examines how hometown-based business associations (HBAs) facilitate suppliers in establishing cooperative relationships with major customers in China. Our findings reveal that suppliers leverage HBAs to forge customer relationships, as evidenced by their choice to allocate a larger share of customer revenue to regions associated with their HBAs. The underlying mechanism is that HBAs alleviate information, trust, and institutional barriers that hinder the development of customer relationships across regions. Furthermore, suppliers with weaker customer acquisition capabilities, poorer accounting information quality, and more intense industry competition derive greater benefits from HBAs. Additional research underscores that higher-quality HBAs exert a stronger facilitative effect on suppliers’ regional customer revenue share, and HBAs also significantly enhance the stability of suppliers’ customer relationships. Our final analysis of consequences indicates that when a supplier’s customers are predominantly located in areas where HBAs are active, the supplier provides more commercial credit while achieving a lower sales expense ratio, reduced bankruptcy risk, and a higher market value. In summary, our results demonstrate that social networks play a pivotal role in helping suppliers build cooperative relationships with major customers.