A Decision-Support Framework for Corporate Investment Efficiency:  The Role of Social Credit Environment and Managerial Overconfidence

Minghua Wu; Fenfen Ma; Liangliang Dong

doi:10.31181/dmame8120251572

Authors

Minghua Wu School of Economics and Management, Neijiang Normal University, Neijiang 641112, China
Fenfen Ma School of Management, Yulin University, Yulin 719000, China
Liangliang Dong Yangtze Branch, Shaanxi Nonferrous Yulin New Materials Group Co., Ltd., Yulin 719000, China

DOI:

https://doi.org/10.31181/dmame8120251572

Keywords:

Social credit; managerial overconfidence; corporate investment efficiency; external financing barriers; principal-agent conflicts; market friction costs

Abstract

This research utilizes the implementation of social credit system pilot cities as a quasi-natural experimental framework. The study examines Chinese A-share listed firms spanning 2012 to 2022. Employing a multi-period Difference-in-Differences methodology, it explores the influence of the social credit environment on managerial overconfidence and corporate investment efficiency. Findings indicate that a robust social credit framework enhances capital allocation efficiency by curbing excessive investment and mitigating funding shortages that result in underinvestment. The social credit context influences investment efficiency via external financing constraints, agency issues, and market imperfections. While managerial overconfidence can lead to both over- and under-investment, its effect on underinvestment is comparatively limited. By reinforcing corporate governance and providing both pre-event restrictions and post-event compensations, the social credit environment positively moderates the relationship between managerial overconfidence and investment efficiency. Overall, the results suggest that the ongoing development of the social credit system has yielded beneficial effects and offers significant practical guidance for reducing inefficient corporate investment behaviors.

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