The impact of dialect distance on firm performance in underdeveloped counties: evidence from urban agglomerations

This paper examines the effect of dialect distance on firm performance in underdeveloped counties within urban agglomerations, using dialect similarity as a conceptual entry point and firms as the primary unit of analysis. Drawing on a panel of 33,228 firm-year observations from underdeveloped counties from 2012 to 2015, we employ a fixed-effects model to identify the causal influence of dialect similarity on firm performance and explore the underlying mechanisms. We document several key findings: (a) greater dialect similarity significantly improves firm performance in these regions; (b) this effect is stronger among older firms and more pronounced in non-state-owned enterprises; (c) the positive impact is amplified in urban agglomerations with higher internet development, greater urban primacy, and higher per capita GDP; (d) dialect similarity enhances performance through increased sales, lower sales and financing costs, higher capital investment, and improved human capital; (e) further analysis suggests that cultural effects, rather than communication effects, drive the results. The study offers theoretical insights and policy implications for promoting common prosperity at the urban agglomeration level.