The construction of social credit system and corporate innovation: Evidence from China

Abstract

Under the background of the construction of a social credit system (CSCS) in China, personalized trust established on emotion and identity is evolving toward generalized trust based on recorded credit information. Using the pilot cities of the CSCS in China, we employ a difference-in-differences identification strategy to examine whether the CSCS affects corporate innovation. We find that pilot cities of the CSCS significantly promote corporate innovation, and the impact of the pilot cities of the CSCS on exploitative innovation is stronger compared with that on exploratory innovation. We further show that the impact of the CSCS on corporate innovation is more significant in firms with low availability of capital for innovation projects, firms with long supply chain distances, and firms in areas with poor protection of intellectual property rights. Finally, we document that CSCS promote cooperative innovation and improve innovation efficiency. Overall, our research helps with a further understanding of the connotation of social trust in China and provides a reference for credit system construction in other economies in the Asia Pacific region.