Unintended Consequences of Social Insurance Law on Stock Price Crash Risk: Quasi-Natural Experimental Evidence from China

This study studies whether the Social Insurance Law implemented in 2011 affects the stock price crash risk. Using the data of Chinese listed companies from 2006 to 2018, this study uses the difference-in-difference method to show that the Social Insurance Law significantly reduces stock price crash risk, and when the tax department collects social insurance premiums, this inhibitory effect still exists, which depends on its taxation efforts. Mechanism analysis find that Social Insurance Law reduces agency costs and improves the transparency of enterprises, indicating that the behavior of enterprises to hide and hoard bad news is reduced. Finally, these effects are more pronounced for enterprises with poor corporate governance, enterprises in regions with poor marketization, and enterprises with lower media attention. Overall, this study provides new insights into reducing systemic financial risks and improving financial market stability.