Too Much or Too Little? The Inverted U-shaped Relationship between Corporate Shadow Banking Activities and Green Production Efficiency

Sijing Li, Yingkai Yin, Qiuyun Zhao and Jennhae Liou

Emerging Markets Finance and Trade, 2025, vol. 61, issue 10, 3232-3259

Abstract: Under the theme of financial support for the real economy, we suggest that corporate shadow banking activities should enhance highquality economic development. Using a sample of nonfinancial listed companies from 2010 to 2021, we empirically test the inverted Ushaped relationship between corporate shadow banking and green production efficiency. The results show that moderate participation in shadow banking improves green production efficiency, while excessive participation hinders it. This relationship remains robust through instrumental variable methods, propensity score matching, and other tests. Mechanism analysis reveals that shadow banking activities impacts green production efficiency through economic and environmental benefits. Heterogeneity analysis finds that green institutional investors, high regional capital intensity, and command-and-control environmental policies mitigate the negative effects of shadow banking, while in non-state-owned enterprises, small firms, and those facing high financing constraints, the inverted U-shaped relationship remains. Additionally, threshold effects indicate that moderate financial supervision and environmental regulation maximize shadow banking’s positive impact on green production efficiency. Our findings provide guidance for aligning financial services with real economic needs and promoting sustainable economic growth.

Date: 2025
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DOI: 10.1080/1540496X.2025.2460663

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