How does implementing the social insurance law affect enterprises' investment preferences?

Yafang Zhu and Yuanyuan Guo

International Review of Financial Analysis, 2024, vol. 96, issue PA

Abstract: This study investigates the impact of the Social Insurance Law on the investment preferences of enterprises by analyzing data from China's A-share listed companies from 2007 to 2021. The study employs a quasi-natural experiment conducted in 2011 to develop a difference-in-difference model, which investigates the impacts of implementing the Social Insurance Law. Implementing the Social Insurance Law has been found to have a notable impact on enterprises' industrial investment, resulting in a decrease while simultaneously causing an increase in investment in financial assets. The mechanism test demonstrates that implementing the Social Insurance Law exacerbates the financial constraints experienced by firms, prompting them to augment their investment in short-term financial assets as a precautionary measure. Research on heterogeneity indicates that implementing the Social Insurance Law affects the investment choices made by non-state-owned organizations and enterprises in locations where tax collection is substantial. Consequently, their investment in financial assets experiences a rise. This article contends that while enacting labor protection measures, such as the Social Insurance Law, it is crucial to exercise prudence to prevent enterprises from disproportionately spending financial resources and bolster their decision-making capabilities.

Keywords: Social insurance law; Investment preference; Speculation motivation; Prevention motivation (search for similar items in EconPapers)
Date: 2024
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Persistent link: https://EconPapers.repec.org/RePEc:eee:finana:v:96:y:2024:i:pa:s1057521924005775

DOI: 10.1016/j.irfa.2024.103645

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