Impacts of China's social credit reform on firm investment efficiency: Evidence from a quasi-natural experiment in China

Xuecheng Wang and Fafu Zhang

Pacific-Basin Finance Journal, 2025, vol. 93, issue C

Abstract: Investment efficiency is a critical determinant of the survival and value growth of firms. This study investigates the causal effect of China's Social Credit System Reform (CSCR) on corporate investment efficiency by employing a difference-in-differences (DID) methodology. Utilizing a sample of A-share listed companies from China's Shanghai and Shenzhen exchanges between 2010 and 2022. The findings indicate that the reform significantly enhances corporate investment efficiency, a result that withstands a series of robustness tests. Mechanism analyses reveal that the reform improves investment efficiency by reductions in agency costs, better quality financial reporting, and a decrease in shadow banking activities. Heterogeneity test suggest that in enterprises with strong financing constraints and low external governance level, CSCR pilot policies have a particularly significant positive impact on enterprise investment efficiency. This study provides valuable insights for the design of more effective social credit policies.

Keywords: Social credit system; Investment efficiency; Corporate governance (search for similar items in EconPapers)
Date: 2025
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Persistent link: https://EconPapers.repec.org/RePEc:eee:pacfin:v:93:y:2025:i:c:s0927538x25001805

DOI: 10.1016/j.pacfin.2025.102843

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