Historical social capital and contemporary private investment choices

This paper investigates the impact of historical commercial social capital on contemporary private investment choices. We use unique data on shanghui, which represented the most important institutionalization of commercial social capital in China's financial industry in the late Qing Dynasty, to find that the establishment of shanghui is associated with a significant increase in residents' private risky asset investment today. The impact originates mainly from (i) an increase in local available investment finance, (ii) individuals' higher financial knowledge and literacy, and (iii) individuals' higher trust level and risk-taking abilities in the financial market. From a historical perspective, this study partially explains the current private investment choices and household financial investment imbalance in China.