Does financial regulation prompt enterprises’ shadow banking? Evidence from China

ABSTRACT

This study utilizes data from non-financial listed companies in China from 2016 to 2022 and employs a quasi-natural experiment to investigate the impact of financial regulation on enterprises’ shadow banking. The research findings indicate that after the Chinese government strengthened regulation on shadow banking, enterprises with substantial bank loans, weaker financing constraints, and state-owned property rights have increased “shadow banking” activities. This phenomenon alleviates the financing constraints faced by highly constrained enterprises, but it brings efficiency losses to the lending enterprises.

KEYWORDS:

• Financial regulation
• enterprises’ shadow banking
• listed companies
• China

JEL CLASSIFICATION:

• G21
• G38

Disclosure statement

No potential conflict of interest was reported by the author(s).

Notes

¹ Descriptive statistics for the variables can be found in the Appendix.

² The author performed a placebo test on the DID model and the result is presented in the Appendix.