The Effect Of Credit Environment On Household Stock Market Participation

Classical financial portfolio theory suggests that risky financial assets,represented by equities,are an essential component of a household’s optimal asset mix.However,the reality is that there is limited participation in the stock market,i.e.,most households do not hold equities or hold much less than the share of equity assets predicted by optimal portfolio theory.Limited stock market participation is not only found in emerging market economies represented by China,but also in developed countries or economies in Europe and the United States,and has gradually become one of the important theoretical bases used by academics to explain the "equity premium puzzle".Limited participation in the stock market not only reduces the channels for households to obtain property income,but also restricts the development of the direct financial market represented by the capital market,leading to a decrease in the efficiency of capital allocation and an increase in the degree of corporate financing constraints,which is detrimental to the realization of the national innovation-driven development strategy,the transformation of the economic structure and the operation of the real economy.Therefore,the 14 th Five-Year Plan and the report of the 20 th Party Congress both clearly point out that we should increase the proportion of direct financing,optimize the financing structure and enhance the capacity of financial services for the real economy,which is related to improving the market allocation of factors,deepening the structural reform of the financial supply side and building a new system of high-level open economy.Given that limited participation in the stock market can have many disadvantages for households,firms and the country,academics and practitioners have begun to explore in depth the causes of limited participation in the stock market and try to find factors affecting households’ participation in the stock market at different macro or micro levels in order to promote stock market participation.Past literature has examined the impact of macro-environment such as economic policy uncertainty,regulatory policy uncertainty and healthcare policy uncertainty and micro characteristics such as financial literacy on the stock market participation of households in their home country mainly based on a country perspective.However,this analytical paradigm,which takes a single country as the object of study,often faces the dilemma that it cannot be applied in a generalized way,such as economic disparity and cultural divide,which lead to the conclusion that the examination of developed countries as the object of study may not be applicable to the transformation of backward developing countries.Based on this,some studies have started to explain the reasons for differences in household stock market participation between countries from a cross-country comparative perspective,such as national cultural differences,differences in gender norms,differences in age structure,and differences in investor rights protection.Cross-country household finance comparisons can help derive non-single-country-specific generalization laws that can provide lessons that other countries can learn from while promoting household stock market participation in their own countries,especially for emerging market countries with more limited stock market participation,as represented by China.Finance is an important dimension reflecting the comprehensive strength of a country,and the modern financial system represented by the capital market is of great significance to the development of a country.However,in contrast to China’s rising overall competitiveness and economic status,the shortcomings of capital market development are becoming increasingly prominent,manifested by the fact that China’s capital market is large but not strong compared to developed countries in Europe and the United States,which is not commensurate with its identity as the second largest economy and severely restricts household stock market participation.Therefore,one of the important academic issues and practical problems before China is how to break the persistent problems of capital market development represented by limited participation in the stock market.Based on the above considerations,this paper analyzes the similarities and differences between the social credit environment and household stock market participation in China and Europe from a cross-country comparative perspective,taking the social credit environment,an external environment with characteristics of both informal and formal institutions,as an entry point,and examines the impact of the social credit environment on household stock market participation in China and Europe,and compares the differences in the impact mechanisms and impact heterogeneity,in order to obtain European experiences that can help promote household stock market participation in China and Chinese experiences that can improve social governance in Europe.The main findings of this paper are as follows.First,we compare the similarities and differences in the social credit environment and household stock market participation characteristics between China and Europe.In terms of social credit environment,the similarities between China and Europe are that the social credit environment is improving and is closely related to the level of economic development and sophistication,while the differences are that the social credit environment has different spatial and temporal characteristics,e.g.,the eastern region of China with the highest level of economic development has the best social credit environment and is improving more,while the Nordic countries with the most developed economies have the best social credit For example,the social credit environment in the eastern part of China with the highest level of economic development is the best and has improved more,while the Nordic countries with the most developed economies have the best social credit environment but the social credit environment is deteriorating.In terms of stock market participation,Chinese and European households’ stock market participation has both similarities and differences in terms of regional distribution,education distribution,income distribution,wealth distribution and savings rate distribution.On the one hand,with similar regional distribution characteristics,both Chinese and European households’ stock market participation is positively correlated with the level of economic development,and the breadth and depth of households’ stock market participation is higher for those living in economically developed regions or countries;on the other hand,with different educational distribution characteristics,income distribution characteristics and wealth distribution characteristics,compared to European countries,Chinese households’ stock market participation has a more obvious On the other hand,with different characteristics of education,income and wealth distribution,Chinese households have a more pronounced problem of "educational inequality","income inequality" and "wealth inequality" than European countries.Second,we analyze and test how the social credit environment affects household stock market participation in China and Europe,respectively.From a Chinese perspective,the study finds that the social credit environment promotes household stock market participation in China,increasing the breadth and depth of stock market participation;mechanism analysis shows that the social credit environment alleviates the inhibitory effect of risk aversion on household stock market participation and promotes stock market participation through channels such as improving financial literacy,easing credit constraints,increasing household income,and promoting innovation and entrepreneurship;heterogeneity examination finds that the social credit environment promotes household stock market participation more significantly in western and northeastern regions,positively affects household stock market participation more in regions with weaker Confucian culture and lower financial inclusion,and promotes household stock market participation more in those who rely on mass information channels for investment information,high occupational status,low education level and low wealth level.From a European perspective,the study shows that a favorable social credit environment increases the breadth and depth of household stock market participation in Europe;mechanism tests find that social credit environment mitigates the negative effect of risk aversion on household stock market participation and drives household stock market participation by improving life well-being and enhancing social interactions,and does not affect household stock market participation by stimulating entrepreneurial dynamics;heterogeneity analysis finds that social credit environment has a greater impact on The heterogeneity analysis finds that the positive effect of social credit environment on household stock market participation is relatively larger in Nordic,Southern and Eastern European countries,and the positive effect on household stock market participation is relatively smaller in Western European countries;the positive effect on household stock market participation is more pronounced in European regions with lower levels of financial inclusion and stronger protection of legal rights,and the positive effect is larger in European countries that support right-wing political parties,rely on private information channels for stock speculation information,have low education levels and low social network richness.The positive impact on household stock market participation is greater in regions with lower levels of financial inclusion and stronger legal rights protection.Finally,we compare the similarities and differences of the impact of the social credit environment on household stock market participation between China and Europe,and find that there are similarities and differences in the impact mechanisms and impact heterogeneity,and provide explanations in terms of formal institutional differences and informal institutional differences.In terms of impact mechanism,the similarity lies in the fact that both Chinese and European social credit environments mitigate the inhibitory effect of risk aversion on household stock market participation,while the difference lies in the fact that Chinese social credit environment promotes stock market participation through channels such as improving financial literacy,easing credit constraints,increasing household income and promoting innovation and entrepreneurship,while European social credit environment promotes household stock market participation through improving life well-being and enhancing social interaction.In terms of impact heterogeneity,the Chinese social credit environment promotes household stock market participation more significantly in western and northeastern regions,positively affects household stock market participation more in regions with weaker Confucian culture and lower financial inclusion,and promotes household stock market participation more in those who rely on mass information channels for investment information,high occupational status,low education level and low wealth level,while the European social credit environment promotes household stock market participation in The positive impact on household stock market participation is relatively greater in Nordic countries,Southern European countries and Eastern European countries,the positive impact on household stock market participation is relatively smaller in Western European countries,the boosting effect on European household stock market participation is more pronounced in regions with lower levels of financial inclusion and stronger legal rights protection,and the positive impact on European supporting right-wing political parties,relying on private information channels for stock speculation information,low education level and low social network richness The positive impact on household stock market participation is greater in regions with stronger legal protection.The reasons for these differences and similarities are related to both formal institutional differences between China and Europe,such as different economic systems,capital market systems and social credit systems,and informal institutional differences between China and Europe,such as different cultural backgrounds,household risk aversion and differences in national financial literacy.This paper has both significant theoretical and practical implications.In terms of theoretical significance: first,it gives new academic vitality to comparative political science and traditional comparative economics by comparing China and European countries;second,it provides new perspectives and evidence for understanding the problem of limited stock market participation by comparing cross-country household finance;third,it expands the literature on the economic consequences of social credit environment and factors influencing stock market participation;fourth,it enriches the research on the impact of household stock market participation Fourth,it enriches the research on the mechanism of household stock market participation.In terms of practical significance: first,it provides guidelines for the Chinese government to formulate policies related to optimizing the social credit environment and promoting household stock market participation;second,it provides insights for the Chinese government to formulate policies related to improving the allocation efficiency of the capital market;third,it provides guidelines for the Chinese government to formulate policies related to increasing the property income of households.The contributions of this study are reflected in the following three aspects.First,it enriches the research perspective of cross-country household finance comparison and provides insights into the cross-country comparative perspective to find solutions to the problem of limited stock market participation.By comparing the similarities and differences in the impact of social credit environment on households’ stock market participation in China and Europe,this paper enriches the research perspective and empirical evidence of cross-country household finance comparison.Second,it enriches the literature related to the factors influencing household stock market participation,especially the cross-country comparisons.By comparing the similarities and differences in the characteristics of household stock market participation between China and Europe,this paper finds solutions to the problem of"educational inequality","income inequality",and "wealth inequality" from the perspective of narrowing the gap between the two countries."By comparing the similarities and differences of the social credit environment on household stock market participation,we explore the European experience of improving household stock market participation in China from the perspective of optimizing the social credit environment.Third,the paper enriches the measurement indicators of social credit environment and expands the research related to the economic consequences of social credit environment.This paper constructs social credit environment indicators that are consistent with the reality in China and Europe,which not only help to identify the causal relationship between social credit environment and household stock market participation,but also provide data support for the literature on the economic consequences of social credit environment.A comparison with the impact of the European social credit environment on household stock market participation provides insights into the promotion of household stock market participation and the optimization of the social credit environment in China.In terms of promoting household stock market participation,China should further reduce the "educational inequality","income inequality" and "wealth inequality" of household stock market participation compared to European countries.In comparison with European countries,China should further reduce the "education inequality","income inequality" and "wealth inequality" of household participation in the stock market,and create conditions and remove obstacles for the participation of low-education,low-income and low-wealth households.In terms of improving the social credit environment,compared to European countries,China should further improve the credit legal system at the governmental level,expand the credit culture at the social level and strengthen the cultivation of integrity awareness at the individual level,so as to lay the legal,cultural and moral foundations for optimizing the social credit environment.