Does Confucian culture affect shadow banking activities? Evidence from Chinese listed companies

The study investigates whether and how cultural norms affect corporate shadow banking activities. Using a sample of Chinese listed companies from 2008 to 2020, we find that as a typical informal institution, Confucian culture has a positive effect on stimulating shadow banking business. Mechanism tests show that Confucianism contributes to mitigating business risks and facilitating integration into social networks to tap more profit opportunities, thus stimulating firms to engage in shadow banking activities. Moreover, the positive association between Confucianism and the amount of corporate shadow banking is more prominent for firms located in regions with higher levels of social trust, stronger regional collectivism, and weaker foreign cultural shocks. Our findings are robust to alternative measures of key variables and are still valid after controlling for the endogeneity issues. This study contributes to the literature on the determinants of corporate shadow banking activities and highlights the role of cultural norms in firm's decision-making.