Does social trust promote the size of enterprises? Evidence from China

Abstract

Existing research on the relationship between social trust and enterprise size primarily relies on cross-country analysis, but country-specific studies are still rare, especially for developing countries. Drawing on Fukuyama’s proposition that social trust fosters enterprise expansion, this study empirically investigates the effect of social trust on the size of enterprises in China. We analyze industrial enterprise data from the China Industrial Enterprise Database and manually collected data on blood donations, a proxy for social trust, at the prefecture level. Our findings indicate that regions with higher social trust have both larger enterprises and a greater prevalence of large enterprises than regions with low social trust. This study offers an explanation for the “riddle of the absence of large enterprises in China” by considering the role of social trust and provides an empirical examination of Fukuyama’s proposition in the unique context of China.