Scientific Reports (Apr 2024)

The effect of city reputation on Chinese corporate risk-taking

  • Sen Li,
  • Haifeng Jiang

DOI
https://doi.org/10.1038/s41598-024-58922-x
Journal volume & issue
Vol. 14, no. 1
pp. 1 – 18

Abstract

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Abstract City reputation is a valuable asset for the local economy and firms in the contemporary society. However, the impact of city reputation on micro-level firms has been largely overlooked by the literature. This paper uses the National Civilized City (NCC) policy in China as a quasi-natural experiment to enhance city reputation. We employ the DID approach to investigate the relationship between city reputation and corporate risk-taking. The result shows that corporate risk-taking significantly increases following the NCC policy adoption. Moreover, information asymmetry can strengthen the positive impact of city reputation on corporate risk-taking. Channel tests show that city reputation improves financial condition and decreases default risk, leading to improved risk-taking tolerance. Overall, our paper indicates that city reputation is an important mechanism to improve corporate financial performance, providing empirical evidence for local governments to pursue the NCC title.

Keywords