How do social insurance premiums influence corporate underinvestment? Evidence from an emerging market

Social insurance premiums (SIPs) raise labor costs, particularly in labor-intensive firms. The growing body of literature has examined SIPs and labor costs in the context of declining demographic dividends; however, the influence of these factors on corporate underinvestment in emerging markets remains underexplored. Using data from A-share listed firms spanning 2006–2016 and a difference-in-differences methodology within China's Social Insurance Law, this study finds that SIPs enhance corporate underinvestment. Moreover, operating and financing costs exacerbate this effect, especially for state-owned enterprises and firms with high operating pressure, large labor recruitment, and low artificial intelligence application. Labor-intensive firms face significant challenges stemming from operational burdens, underscoring the need for government support during their transformation. This study advances the theoretical and empirical discourse within the fields of corporate finance and labor economics.