Identifying the impact of bank competition on corporate shadow banking: Evidence from China

Chun Jiang, Ya-Qi Chang, Xinyu Ge and Deng-Kui Si

Economic Modelling, 2023, vol. 126, issue C

Abstract: The surge of corporate shadow banking activities in China has drawn much attention from academia and policymakers; yet very little is known about whether bank competition matters for corporate shadow banking activities. Using a large sample of Chinese listed non-financial enterprises (NFEs) over the period of 2003–2019, we identify the impact of bank competition on corporate shadow banking activities. We find a negative relation of bank competition with corporate shadow banking activities. Greater bank competition reduces corporate shadow banking activities by relaxing the firms’ financing constraints, alleviating information asymmetries, and improving their investment efficiency. Our results are robust to alternative metrics of core variables, controlling for regional characteristics, instrumental variable analysis, and the difference-in-differences estimation. Our findings suggest that a deregulation of bank entry, which increases bank competition, is an effective way to restrain corporate shadow banking activities without sacrificing economic growth.

Keywords: Bank competition; Corporate shadow banking; Financing constraints; Investment efficiency; Information asymmetries (search for similar items in EconPapers)
JEL-codes: D40 E44 G21 (search for similar items in EconPapers)
Date: 2023
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (9)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:ecmode:v:126:y:2023:i:c:s0264999323001979

DOI: 10.1016/j.econmod.2023.106385

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