IDEAS home Printed from https://ideas.repec.org/a/eee/ecanpo/v88y2025icp1699-1719.html

The role of credit in business: Social credit and entrepreneurship in China

Author

Listed:
  • Zhang, Shaohui
  • Yu, Yongze
  • Li, Xiaofan
  • Peng, Wei
  • Tao, Yunqing

Abstract

Entrepreneurship serves as a vital engine for economic growth. However, there is a lack of attention to the influence of social credit on entrepreneurship from the perspective of modernizing social governance. Based on the construction of the social credit system (COSCS) in China, this paper investigates the effects of social credit on entrepreneurship by using a staggered difference-in-difference (DID) model. We find that the COSCS significantly and positively affects entrepreneurship, which is robust across various tests. The possible mechanism for the effect of the COSCS on entrepreneurship is further verified, including the business environment and financial support at the macro-city level, as well as the transaction costs and financing constraints at the micro-enterprise level. Moreover, the impact of the COSCS on entrepreneurship is particularly pronounced for non-state-owned enterprises, especially in cities with higher levels of the rule of law, civilization, and marketization process. Overall, this paper expands the scope of research on the influencing factors of entrepreneurship and offers policy insights for government departments on how to further improve the construction of the social credit system.

Suggested Citation

  • Zhang, Shaohui & Yu, Yongze & Li, Xiaofan & Peng, Wei & Tao, Yunqing, 2025. "The role of credit in business: Social credit and entrepreneurship in China," Economic Analysis and Policy, Elsevier, vol. 88(C), pages 1699-1719.
    • Handle: RePEc:eee:ecanpo:v:88:y:2025:i:c:p:1699-1719
    DOI: 10.1016/j.eap.2025.11.003
    as

    Download full text from publisher

    File URL: http://www.sciencedirect.com/science/article/pii/S0313592625004515
    Download Restriction: Full text for ScienceDirect subscribers only
    File URL: https://libkey.io/10.1016/j.eap.2025.11.003?utm_source=ideas
    LibKey link: if access is restricted and if your library uses this service, LibKey will redirect you to where you can use your library subscription to access this item
    ---><---

    As the access to this document is restricted, you may want to

    for a different version of it.

    References listed on IDEAS

    as
    1. Yin, Zhichao & Gong, Xue & Guo, Peiyao & Wu, Tao, 2019. "What Drives Entrepreneurship in Digital Economy? Evidence from China," Economic Modelling, Elsevier, vol. 82(C), pages 66-73.
    2. Myers, Stewart C. & Majluf, Nicholas S., 1984. "Corporate financing and investment decisions when firms have information that investors do not have," Journal of Financial Economics, Elsevier, vol. 13(2), pages 187-221, June.
    3. Nan Sun & Yunqing Tao & Xuan Leng & Jiaxuan Li, 2023. "Social credit and corporate leverage: Evidence from a natural experiment in China," Managerial and Decision Economics, John Wiley & Sons, Ltd., vol. 44(7), pages 3962-3978, October.
    4. Kong, Dongmin & Zhao, Ying & Liu, Shasha, 2021. "Trust and innovation: Evidence from CEOs' early-life experience," Journal of Corporate Finance, Elsevier, vol. 69(C).
    5. Mercedes Delgado & Michael E. Porter & Scott Stern, 2010. "Clusters and entrepreneurship," Journal of Economic Geography, Oxford University Press, vol. 10(4), pages 495-518, July.
    6. Clément de Chaisemartin & Xavier D'Haultfœuille, 2020. "Two-Way Fixed Effects Estimators with Heterogeneous Treatment Effects," American Economic Review, American Economic Association, vol. 110(9), pages 2964-2996, September.
    7. Kirsten Foss & Nicolai J. Foss, 2022. "Property Rights, Transaction Costs, and Entrepreneurship," Springer Books, in: Economic Microfoundations of Strategic Management, chapter 0, pages 215-250, Springer.
    8. Stephen Knack & Philip Keefer, 1997. "Does Social Capital Have an Economic Payoff? A Cross-Country Investigation," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 112(4), pages 1251-1288.
    9. Cristina Bettinelli & Barbara Del Bosco & Davide Castellani, 2024. "Shaping entrepreneurship in developing countries: the role of savings and credit groups," Entrepreneurship & Regional Development, Taylor & Francis Journals, vol. 36(9-10), pages 1385-1407, October.
    10. Allen, Franklin & Qian, Jun & Qian, Meijun, 2005. "Law, finance, and economic growth in China," Journal of Financial Economics, Elsevier, vol. 77(1), pages 57-116, July.
    11. Deqiu Chen & Xuejiao Liu & Cong Wang, 2016. "Social Trust and Bank Loan Financing: Evidence from China," Abacus, Accounting Foundation, University of Sydney, vol. 52(3), pages 374-403, September.
    12. Yu, Linhui & Tang, Xuepeng & Huang, Xianhai, 2023. "Does the business environment promote entrepreneurship?——Evidence from the China Household Finance Survey," China Economic Review, Elsevier, vol. 79(C).
    13. Praveen Kumar & Nisan Langberg, 2009. "Corporate fraud and investment distortions in efficient capital markets," RAND Journal of Economics, RAND Corporation, vol. 40(1), pages 144-172, March.
    14. Gordon, Roger & Sarada,, 2018. "How should taxes be designed to encourage entrepreneurship?," Journal of Public Economics, Elsevier, vol. 166(C), pages 1-11.
    15. Wu, Wenfeng & Firth, Michael & Rui, Oliver M., 2014. "Trust and the provision of trade credit," Journal of Banking & Finance, Elsevier, vol. 39(C), pages 146-159.
    16. Zhang, Jin & Wang, Lanfang & Wang, Susheng, 2012. "Financial development and economic growth: Recent evidence from China," Journal of Comparative Economics, Elsevier, vol. 40(3), pages 393-412.
    17. Mark Gertler, 1992. "Financial Capacity and Output Fluctuations in an Economy with Multi-Period Financial Relationships," The Review of Economic Studies, Review of Economic Studies Ltd, vol. 59(3), pages 455-472.
    18. Wei, Yifan, 2022. "Regional governments and opportunity entrepreneurship in underdeveloped institutional environments: An entrepreneurial ecosystem perspective," Research Policy, Elsevier, vol. 51(1).
    19. Francis A. Longstaff & Sanjay Mithal & Eric Neis, 2005. "Corporate Yield Spreads: Default Risk or Liquidity? New Evidence from the Credit Default Swap Market," Journal of Finance, American Finance Association, vol. 60(5), pages 2213-2253, October.
    20. Dean Karlan & Jonathan Zinman, 2010. "Expanding Credit Access: Using Randomized Supply Decisions to Estimate the Impacts," The Review of Financial Studies, Society for Financial Studies, vol. 23(1), pages 433-464, January.
    21. Xuan Tian & Jiajie Xu, 2022. "Do Place-Based Policies Promote Local Innovation and Entrepreneurship? [A model of growth through creative destruction]," Review of Finance, European Finance Association, vol. 26(3), pages 595-635.
    22. Goraya, Sampreet Singh, 2023. "How does caste affect entrepreneurship? birth versus worth," Journal of Monetary Economics, Elsevier, vol. 135(C), pages 116-133.
    23. Baker, Andrew C. & Larcker, David F. & Wang, Charles C.Y., 2022. "How much should we trust staggered difference-in-differences estimates?," Journal of Financial Economics, Elsevier, vol. 144(2), pages 370-395.
    24. FU, Yunyun & SHEN, Yongchang & SONG, Malin & WANG, Weiyu, 2024. "Does artificial intelligence reduce corporate energy consumption? New evidence from China," Economic Analysis and Policy, Elsevier, vol. 83(C), pages 548-561.
    25. Goodman-Bacon, Andrew, 2021. "Difference-in-differences with variation in treatment timing," Journal of Econometrics, Elsevier, vol. 225(2), pages 254-277.
    26. Fang, Hongxing & Chen, Linghong & Xiong, Jiacai & Zhu, Yushu, 2024. "Social Trust and Entrepreneurship: Insights from China's Social Credit System," Finance Research Letters, Elsevier, vol. 62(PA).
    27. Yang, Chaolin & Yan, Jingdong & He, Xiaodan & Tian, Shiqi, 2023. "What determines the survival of farmer entrepreneurship: Micro-evidence from China," International Review of Economics & Finance, Elsevier, vol. 86(C), pages 334-348.
    28. Banerjee, Abhijit & Duflo, Esther & Qian, Nancy, 2020. "On the road: Access to transportation infrastructure and economic growth in China," Journal of Development Economics, Elsevier, vol. 145(C).
    29. Teimuraz Gogokhia & George Berulava, 2021. "Business environment reforms, innovation and firm productivity in transition economies," Eurasian Business Review, Springer;Eurasia Business and Economics Society, vol. 11(2), pages 221-245, June.
    30. Levesque, Moren & Minniti, Maria, 2006. "The effect of aging on entrepreneurial behavior," Journal of Business Venturing, Elsevier, vol. 21(2), pages 177-194, March.
    31. Eliana La Ferrara & Alberto Chong & Suzanne Duryea, 2012. "Soap Operas and Fertility: Evidence from Brazil," American Economic Journal: Applied Economics, American Economic Association, vol. 4(4), pages 1-31, October.
    32. Huang, Zhuo & Tao, Yunqing & Zhang, Qidi & Ye, Yongwei, 2023. "The road to entrepreneurship: The effect of China's broadband infrastructure construction," Economic Analysis and Policy, Elsevier, vol. 80(C), pages 1831-1847.
    33. Friederike Welter & David Smallbone, 2011. "Institutional Perspectives on Entrepreneurial Behavior in Challenging Environments," Journal of Small Business Management, Taylor & Francis Journals, vol. 49(1), pages 107-125, January.
    34. Kuratko, Donald F. & Devin Burnell, & Stevenson, Regan & Neubert, Emily & Fisher, Greg, 2023. "Enacting entrepreneurial hustle," Business Horizons, Elsevier, vol. 66(2), pages 237-249.
    35. Kuratko, Donald F. & Covin, Jeffrey G., 2025. "Fifty years of entrepreneurship: Recalling the past, examining the present, & foreshadowing the future," Journal of Business Research, Elsevier, vol. 186(C).
    36. Zhang, Zhenhua & Li, Peixuan & Wang, Xinyi & Ran, Rong & Wu, Wenshuai, 2024. "New energy policy and new quality productive forces: A quasi-natural experiment based on demonstration cities," Economic Analysis and Policy, Elsevier, vol. 84(C), pages 1670-1688.
    37. Baumol, William J., 1996. "Entrepreneurship: Productive, unproductive, and destructive," Journal of Business Venturing, Elsevier, vol. 11(1), pages 3-22, January.
    38. Lan, Fei & Wang, Wei & Cao, Qingzi, 2020. "Tax cuts and enterprises’ R&D intensity: Evidence from a natural experiment in China," Economic Modelling, Elsevier, vol. 89(C), pages 304-314.
    39. Cull, Robert & Xu, Lixin Colin, 2003. "Who gets credit? The behavior of bureaucrats and state banks in allocating credit to Chinese state-owned enterprises," Journal of Development Economics, Elsevier, vol. 71(2), pages 533-559, August.
    40. Hu, Shan & Yu, Yongze & Fei, Qingyu, 2023. "Social credit and patent quality: Evidence from China," Journal of Asian Economics, Elsevier, vol. 84(C).
    41. Thorsten Beck & Ross Levine & Alexey Levkov, 2010. "Big Bad Banks? The Winners and Losers from Bank Deregulation in the United States," Journal of Finance, American Finance Association, vol. 65(5), pages 1637-1667, October.
    42. Cao, Chunfang & Xia, Changyuan & Chan, Kam C., 2016. "Social trust and stock price crash risk: Evidence from China," International Review of Economics & Finance, Elsevier, vol. 46(C), pages 148-165.
    43. Zhang, Zhenhua & Luo, Cong & Zhang, Guoxing & Shu, Yuqin & Shao, Shuai, 2024. "New energy policy and green technology innovation of new energy enterprises: Evidence from China," Energy Economics, Elsevier, vol. 136(C).
    44. Kong, Dongmin & Qin, Ni & Xiang, Junyi, 2021. "Minimum wage and entrepreneurship: Evidence from China," Journal of Economic Behavior & Organization, Elsevier, vol. 189(C), pages 320-336.
    45. Tao, Yunqing & Kong, Dongmin & Sun, Nan & Li, Xiaofan, 2024. "Social credit and corporate risk-taking: Evidence from China," Research in International Business and Finance, Elsevier, vol. 69(C).
    46. Callaway, Brantly & Sant’Anna, Pedro H.C., 2021. "Difference-in-Differences with multiple time periods," Journal of Econometrics, Elsevier, vol. 225(2), pages 200-230.
    47. Wei, Yifan, 2022. "Reprint of: Regional governments and opportunity entrepreneurship in underdeveloped institutional environments: An entrepreneurial ecosystem perspective," Research Policy, Elsevier, vol. 51(9).
    Full references (including those not matched with items on IDEAS)

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Huang, Yuhong & Chen, Xiaozhou & Chen, Xinmin, 2026. "Social credit environment and corporate trade credit financing: Evidence from China," Journal of Business Research, Elsevier, vol. 205(C).
    2. Zuo, Jingjing & Huang, Changqing & Qiu, Baoyin & Mai, Ruidong, 2023. "The construction of social credit system and corporate innovation: Evidence from China," Pacific-Basin Finance Journal, Elsevier, vol. 81(C).
    3. Zou, Tao & Li, Shasha & Dai, Yixin, 2025. "Does the pilot free trade zone promote “quality improvement and quantity increase” of the city’s export trade?," Economic Analysis and Policy, Elsevier, vol. 87(C), pages 1323-1341.
    4. Ma, Rui & Guo, Fei & Li, Dongdong, 2024. "Can public data availability affect stock price crash risk? Evidence from China," International Review of Financial Analysis, Elsevier, vol. 94(C).
    5. Liang, Shuzhen & Ye, Yongwei & Yun, Feng, 2024. "Social credit system construction and entrepreneurial activity: A quasi-natural experiment from China," Journal of Asian Economics, Elsevier, vol. 95(C).
    6. Fang, Hongxing & Chen, Linghong & Xiong, Jiacai & Zhu, Yushu, 2024. "Social Trust and Entrepreneurship: Insights from China's Social Credit System," Finance Research Letters, Elsevier, vol. 62(PA).
    7. Zhu, Junjie & Guo, Hongfeng, 2025. "Does the development of high-speed rail benefit carbon emissions reduction?," Transport Policy, Elsevier, vol. 172(C).
    8. Brahma, Ananyo & Soundararajan, Vidhya, 2026. "Do rural roads promote inclusive entrepreneurship?," Journal of Economic Behavior & Organization, Elsevier, vol. 241(C).
    9. Zhang, Jingxue & Yu, Shiwei & Zhang, Yue-Jun & Su, Bin & Sun, Ya-Fang, 2025. "How do renewable energy policies affect energy green development? Evidence from Chinese listed energy firms," Energy Economics, Elsevier, vol. 142(C).
    10. Yixuan Tan & Jianjun Li & Fanghui Li, 2025. "Tax–Debt Substitution? Local Government Debt Management and Corporate Tax Burden," China & World Economy, Institute of World Economics and Politics, Chinese Academy of Social Sciences, vol. 33(2), pages 252-282, March.
    11. Xing, Qiuhang & Xu, Gaoshuang & Wang, Yanping, 2024. "Open government data and the cost of debt," International Review of Financial Analysis, Elsevier, vol. 95(PA).
    12. Nie, Song, 2024. "Does intellectual property rights protection matter for low-carbon transition? The role of institutional incentives," Economic Modelling, Elsevier, vol. 140(C).
    13. Dong, Siyuan & Wang, Na & Fan, Chengwei & Chen, Shi & Zhang, Lei, 2024. "E-commerce and rural women entrepreneurship ——Based on the quasi-natural experiment of “comprehensive demonstration policy” for E-commerce in rural areas," Economic Analysis and Policy, Elsevier, vol. 83(C), pages 749-765.
    14. Fanglin Chen & Zhongfei Chen, 2024. "Cultural shock of high‐speed rail: Evidence from social trust," Journal of Regional Science, Wiley Blackwell, vol. 64(2), pages 527-554, March.
    15. Xufei Zhang & Hongsheng Fang & Lin Guo, 2023. "Corporate Endowment Insurance Fee Reduction and Employee Wages: Evidence from China," China & World Economy, Institute of World Economics and Politics, Chinese Academy of Social Sciences, vol. 31(2), pages 192-222, March.
    16. Chen, Xing & Huang, Zhijian (James) & Li, Zhuo & Wen, Fenghua, 2025. "Impact from a distance: Emotionally attached-place disasters and corporate risk-taking," Journal of Corporate Finance, Elsevier, vol. 93(C).
    17. Wu, Shan & Zou, Mengqi & Jin, Tongen, 2025. "Data element marketization and corporate investment efficiency: Evidence from China," International Review of Financial Analysis, Elsevier, vol. 104(PA).
    18. Xue, Yi & Zhang, Xinzhi, 2024. "Digital transformation and corporate capital structure: Evidence from China," Pacific-Basin Finance Journal, Elsevier, vol. 84(C).
    19. Xiao Chi Wang & Wei Hao & Jiali Fang & Ji (George) Wu & Liping Zou, 2024. "Trust and corporate debt maturity mismatch: Evidence from China," Accounting and Finance, Accounting and Finance Association of Australia and New Zealand, vol. 64(2), pages 2147-2172, June.
    20. Wang, Shuguang & Li, Hui & Zhang, Ying, 2025. "The impact of big data tax administration on local fiscal revenue: New evidence from the "Golden Tax Project Phase III"," Economic Analysis and Policy, Elsevier, vol. 86(C), pages 1409-1426.

    More about this item

    Keywords

    ;
    ;
    ;

    JEL classification:

    • G28 - Financial Economics - - Financial Institutions and Services - - - Government Policy and Regulation
    • R11 - Urban, Rural, Regional, Real Estate, and Transportation Economics - - General Regional Economics - - - Regional Economic Activity: Growth, Development, Environmental Issues, and Changes
    • Z13 - Other Special Topics - - Cultural Economics - - - Economic Sociology; Economic Anthropology; Language; Social and Economic Stratification

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:eee:ecanpo:v:88:y:2025:i:c:p:1699-1719. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Catherine Liu (email available below). General contact details of provider: http://www.journals.elsevier.com/economic-analysis-and-policy .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.