Social credit and corporate risk-taking: Evidence from China

Abstract

Social credit refers to establishing mutual trust among diverse social entities through adherence to contractual principles. Despite the acknowledged significance of risk-taking in fostering corporate performance, scant attention has been devoted to exploring the influence of social credit on corporate risk-taking. Based on China’s social credit reform policies, we use a staggered difference-in-difference (DID) estimation approach to conduct our study and find that good social credit significantly enhances corporate risk-taking. This phenomenon can be attributed to ameliorating agency costs and alleviating financing constraints. Furthermore, our findings are more significant for firms with weaker corporate governance, higher external financing constraints, and regions with insufficient formal institutions. In conclusion, this study not only expands the research on the influencing factors of risk-taking, but also provides useful references for government departments on how to further improve the construction of social credit system.