Social insurance law and corporate performance in China

Peiheng Ruan, Shuai Wang and Feng Yun

International Review of Economics & Finance, 2024, vol. 94, issue C

Abstract: Social Insurance Contributions exert a liquidity constraint on firms and hence influence the performance of firms. By exploiting the enforcement of China's Social Insurance Law (SIL) in 2011 as a quasi-natural experiment, this paper studies the impact of social insurance contributions on the performance of enterprises through a difference-in-differences method. We find that SIL negatively affects the performance of firms, and this effect is more pronounced in firms with weaker cost-shifting capacity. Mechanism tests prove the liquidity constraints channel through the perspective of the firm's cash flow, accounts payable, investment-cash flow sensitivity, and scale of operations. Our findings demonstrate that firms cannot fully mitigate the negative impact brought by Social Insurance Contributions.

Keywords: Social insurance law; Social insurance contributions; Cost-shifting capacity; Firm performance; Difference-in-differences model (search for similar items in EconPapers)
JEL-codes: H55 K31 L25 (search for similar items in EconPapers)
Date: 2024
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Persistent link: https://EconPapers.repec.org/RePEc:eee:reveco:v:94:y:2024:i:c:s1059056024003666

DOI: 10.1016/j.iref.2024.103374

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