Social credit improvement and enterprise investment

• We explore the effect of social credit improvement on enterprise investment. • Social credit improvement increases enterprise investment by mitigating agency cost and enhancing debt financing. • The impact is more significant for enterprises without political affiliations and with high institutional shareholding. • The economic significance of social credit is clarified. This research explores the effects of enhancing social credit on corporate investment, utilizing China's model city pilots for the Social Credit System Construction(SCSC) as a quasi-natural experiment. Our findings demonstrate that social credit improvement significantly increases enterprise investment levels, a conclusion supported by robustness tests. Mechanism analysis reveals that mitigating agency cost and enhancing debt financing are key factors driving increased corporate investment after the implementation of the SCSC. Heterogeneity results suggest that SCSC implementation is more effective for firms without political affiliation and with high institutional shareholding.