The Influence of Non-Financial Enterprises' Shadow Banking on Innovation Quality Under Economic Policy Uncertainty

This paper investigates the influence of non-financial firms' involvement in shadow banking on the caliber of corporate innovation. It focuses on Chinese non-financial listed companies between 2012 and 2022 and delves deeper into the mechanism of economic policy uncertainty (EPU) in relation to the interplay between shadow banking and innovation quality. The findings reveal that firms participating in shadow banking activities experience a decline in innovation quality, with a more pronounced effect observed among state-owned enterprises (SOEs) and small and medium-sized enterprises (SMEs). Furthermore, EPU amplifies the negative impact of non-financial firms' shadow banking on innovation quality. The outcomes of this study hold significant academic value and practical implications for curbing enterprise shadow banking, optimizing resource allocation structures, maintaining economic policy stability, and fostering high-quality businesses development. How non-financial companies' secret loans affect their ability to innovate when economic policies are unstableThis research looks into how non-financial companies that do secret or unofficial banking (called shadow banking) affect their ability to create new and better products or services (known as innovation quality). It mainly focuses on Chinese non-financial companies listed on the stock market between 2012 and 2022. The study also explores how changes in economic policies (economic policy uncertainty, or EPU) connect to shadow banking and innovation quality. The results show that companies involved in shadow banking often see a drop in their innovation quality. This effect is stronger in companies owned by the government (state-owned enterprises, or SOEs) and in smaller businesses (small and medium-sized enterprises, or SMEs). Moreover, when economic policies are uncertain, shadow banking's negative effects on innovation become worse. This study is important for understanding how to limit shadow banking, use resources more efficiently, keep economic policies stable, and help businesses develop better.