Employee pension welfare and corporate risk-taking: Evidence from the enterprise annuity system in China

As a means of labour motivation, the social reputation created by employee welfare can increase the resources available for corporate risk-taking but may also reduce managers' willingness to take risks. An enterprise annuity system, a key component of China's pension insurance system, is a voluntary pension welfare provided by enterprises to employees. By analyzing the Chinese enterprise annuity system, we investigate the impact of employee pension welfare on corporate risk-taking. The findings indicate that an annuity system significantly reduces corporate risk-taking, and this effect is sustainable over the long term. Rising labour costs and improved corporate social responsibility performance are the economic mechanisms through which an annuity system reduces corporate risk-taking. Cross-sectional analysis shows that this effect is more pronounced in periods of higher economic policy uncertainty, in areas with larger aging populations, and in state-owned enterprises. Further analysis finds that by establishing an annuity system, non-state-owned enterprises can improve political connections and reduce debt financing costs. Our study thus enriches research on the economic consequences of employee welfare and provides a theoretical basis for the government to alleviate pressure on pensions and for enterprises to improve employee incentive mechanisms.