Under Pressure: How China's Social Credit System Enhances Corporate Social Security Contribution Compliance

ABSTRACT Using the construction of China's Social Credit System (CSCS) as a quasi‐natural experiment, this study examines its impact on corporate social security contributions. By analysing data from listed Chinese firms between 2008 and 2023, we find that the CSCS significantly boosts firms' contributions to social security, particularly in the areas of pension and medical insurance. This effect is driven by two key mechanisms: promoting corporate social responsibility and alleviating financing constraints. Our heterogeneity analysis reveals that the impact is more pronounced in firms that (1) face greater social security obligations, (2) lack strong employee protection organisations and (3) have lower employee bargaining power. Furthermore, the economic consequence analysis demonstrates that the increased social security contributions resulting from the CSCS positively affect firm performance. These findings highlight the potential of the CSCS to improve corporate social behaviour and provide important insights for policymakers seeking to use policy instruments to strengthen social security contribution and support business development.