How social credit affects enterprise innovation: Evidence from the development of China's social credit system

Abstract

Technological innovation is the fundamental driving force for economic growth, and a conducive institutional environment is the foundation for fostering technological innovation. As a new social mechanism, China's Social Credit System (SCS) is significant in promoting enterprise innovation by institutionalizing informal institutions-social trust. Adopting the data of Chinese listed enterprises from 2011 to 2019 and a staggered difference-in-difference method, this study employs the policy of SCS demonstration cities as a quasi-natural experiment to quantitatively analyze the effect of SCS on enterprise innovation and its influencing mechanisms. The finding reveals that institutionalizing social trust through the SCS can significantly promote enterprise innovation. The promoting effect of SCS on enterprise innovation is achieved by facilitating enterprise credit financing, promoting enterprise cooperation, and optimizing government resource allocation. Moreover, the promoting effect of SCS on enterprise innovation is significant in cities with high marketization and informatization. The effect also exists in the adjacent cities of the SCS pilot policy, that is, SCS has spillover effects on enterprise innovation. This study is helpful not only for enterprise decision-makers to better strengthen credit management and accelerate enterprise innovation, but also for government policymakers to improve SCS, optimize the business environment and promote enterprise innovation.