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

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  • Wang, Xuecheng
  • Zhang, Fafu

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.

Suggested Citation

  • Wang, Xuecheng & Zhang, Fafu, 2025. "Impacts of China's social credit reform on firm investment efficiency: Evidence from a quasi-natural experiment in China," Pacific-Basin Finance Journal, Elsevier, vol. 93(C).
    • Handle: RePEc:eee:pacfin:v:93:y:2025:i:c:s0927538x25001805
    DOI: 10.1016/j.pacfin.2025.102843
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