Investor-enterprise interactions and shadow banking of non-financial enterprises in China

Using the data of China A-share non-financial Enterprises from 2010 to 2019, this paper studies the impact of investor-firm interaction on shadow banking of non-financial enterprises in China. We find that the investor-enterprise interactions have a negative effect on shadow banking of nonfinancial enterprises, which still hold after robustness tests and endogeneity tests. In addition, our findings are more pronounced in non-state-owned enterprises and enterprises with high financial constraints. Finally, the mechanism tests show that investor-enterprise interactions can reduce the size of shadow banking through external governance channel and information asymmetry channel. Our study confirms that the interactions between retail investors and firms, exert governance effects on corporate decision-making, which has significant implications for the development of capital markets in emerging economies.