Firm's Social Security Costs and Decentralization Decision

ABSTRACT This study examines how higher employer social security costs affect the allocate decision‐making authority using data from Chinese listed companies from 2007 to 2022, employing both fixed‐effects and difference‐in‐differences (DID) models. Based on an extensive sample of firms, we find that higher social security costs are associated with a major delegation of authority from parent companies to their affiliates. Evidence suggests this adjustment occurs because the extra cost changes each firms' competitive environment and operating results. The impact is most pronounced in non–state‐owned firms and in firms that face tight financing constraints, indicating that ownership and financing flexibility shape the response. Our findings contribute to the organizational design literature by demonstrating that social security costs can act as an external driver of firm decentralization.