From Financialization to Sustainability: The Impact of Climate Risks on Shadow Banking Activities in Non-Financial Firms in China

Qiuyue Zhang, Yili Lin and Yu Cao ()
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Qiuyue Zhang: School of Economics and Management, Beijing University of Technology, Beijing 100124, China
Yili Lin: School of Political Science and Law, University of Jinan, Jinan 250022, China
Yu Cao: School of Social Research, Renmin University of China, Beijing 100872, China

Sustainability, 2024, vol. 16, issue 19, 1-20

Abstract: Climate risks are increasingly shaping corporate strategies, raising important considerations for sustainability. This study explores the impact of climate risks on the shadow banking activities of non-financial firms, examining how these risks influence sustainable financial practices. Analyzing a sample of Chinese listed firms from 2010 to 2022, this study finds that climate risks are negatively associated with shadow banking activities, reflecting a shift towards more sustainable financial management. This finding remains robust through various robustness checks and tests for endogeneity. Heterogeneity results indicate that the reduction in shadow activities due to climate risks is more pronounced in firms with higher dependence on external financing and weaker profitability. Mechanism results suggest that climate risks amplify cross-sectional risks for firms, increasing risk sources. Simultaneously, companies enhance their preference for holding cash to address potential risks. The combined effect of these factors leads to a decrease in shadow banking activities among non-financial firms, aligning with a shift towards sustainability. This study provides new insights into understanding how climate risks drive sustainable financial decision-making and enriches the research on the determinants of firm financialization.

Keywords: climate risk; shadow banking; sustainability; financialization (search for similar items in EconPapers)
JEL-codes: O13 Q Q0 Q2 Q3 Q5 Q56 (search for similar items in EconPapers)
Date: 2024
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