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

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

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.

Suggested Citation

  • Jiang, Chun & Chang, Ya-Qi & Ge, Xinyu & Si, Deng-Kui, 2023. "Identifying the impact of bank competition on corporate shadow banking: Evidence from China," Economic Modelling, Elsevier, vol. 126(C).
    • Handle: RePEc:eee:ecmode:v:126:y:2023:i:c:s0264999323001979
    DOI: 10.1016/j.econmod.2023.106385
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    6. Wei, Qi & Zeng, Sheng & Tao, Qingmei, 2024. "Does bank competition improve borrower welfare? Evidence from China," Economic Analysis and Policy, Elsevier, vol. 82(C), pages 1353-1368.
    7. Yan, Youliang & Wang, Maochuan & Hu, Guoliu & Jiang, Chengxin, 2024. "Does Confucian culture affect shadow banking activities? Evidence from Chinese listed companies," Research in International Business and Finance, Elsevier, vol. 68(C).
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    More about this item

    Keywords

    Bank competition; Corporate shadow banking; Financing constraints; Investment efficiency; Information asymmetries;
    All these keywords.

    JEL classification:

    • G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Micro Finance Institutions; Mortgages
    • D40 - Microeconomics - - Market Structure, Pricing, and Design - - - General
    • E44 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Financial Markets and the Macroeconomy

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