Social trust and the performance of foreign firms: evidence from an emerging market

Purpose This study aims to contribute to the existing institutional literature by examining the impact of regional social trust on foreign firm performance. Design/methodology/approach In this study, 10,286 annual observations of foreign firms in China from 2008 to 2020 are used to test the research hypotheses using an ordinary least square regression model. Findings Social trust can improve foreign firm performance by reducing operating costs and increasing risk-taking capacity, while formal institutions and economic policy uncertainty strengthen the positive relationship between social trust and foreign firm performance. Moreover, the results of the heterogeneity test show that the positive relationship is only manifested in the samples from the eastern region and is more pronounced in the samples of small- and medium-sized foreign firms and non-manufacturing foreign firms. Originality/value This study makes a theoretical contribution to the literature on institutional theory and foreign firm performance, as well as providing practical guidance to foreign firms on how to improve their performance.