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Using a large sample of Italian small and medium-sized enterprises (SMEs), we investigate the effect of business cooperation realized through a "network contract" on the economic performance of network members. We find that establishing a formal business network has a positive effect on a firm's gross margin ratio and exports, but not on profits. The advantages of this type of networking are stronger in the cases of: smaller firms; firms operating in traditional markets; firms operating in turbulent markets; firms located in less developed areas; and firms not part of an industrial district. The characteristics of a network (such as its size, geographical dispersion and the sectorial diversity of its members), also have an impact on firm performance.

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