Social Credit Scoring System and Corporate Pollution Governance: Insights from China's Social Credit System Construction

Abstract

This study examines the effect of the China's Social Credit System (CSCS) construction as a quasi-natural experiment on corporate emissions. The System collects and shares credit information, including environmental credit for firms. Using 31,382 firm-year observations of Chinese non-financial listed firms from 2007-2021 and pilot programs in the construction of the CSCS in various cities, we document that firms located in cities with the CSCS system lower their emissions than those in cities without the CSCS system. Additional analysis suggests that the lower emission for the CSCS firms is due to improving environmental information disclosure, enhancing technological progress, and alleviating financing constraints. The moderating analysis reveals that the impact of the CSCS on restraining corporate emissions is more salient when a firm: (1) belongs to a heavily polluting industry or is a privately‒owned enterprise; (2) with management myopia or lack of environmental awareness; or (3) with weaker internal and external monitoring.

Keywords: Social credit, corporate pollution, environmental information disclosure, technological progress, financing constraints