The impact of strict financial regulatory policies on corporate diversification decisions

Xiaonan Peng, Shiyou Zhu and Xixi Wu

Finance Research Letters, 2025, vol. 77, issue C

Abstract: This paper aims to evaluate the impact of stringent financial regulation policies on shadow banking governance and gain a deeper comprehension of Chinese enterprises' diversification strategies. Utilizing the 2018 asset management and entrusted loan regulations as a quasi-natural experiment, the study employs the double-difference model to assess how these regulations affect diversification decisions within the real estate and "two high and one surplus" (high pollution, high energy consumption, and surplus capacity) industries. The results reveal that enterprises in these industries are more inclined to diversify following the introduction of the regulations. However, as shadow banking regulations tighten, these enterprises tend to refocus on their core business operations.

Keywords: Strict financial regulation; Diversification; Liquidity shock (search for similar items in EconPapers)
Date: 2025
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Persistent link: https://EconPapers.repec.org/RePEc:eee:finlet:v:77:y:2025:i:c:s1544612325002508

DOI: 10.1016/j.frl.2025.106986

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