Does environmental regulation caused by air pollution reduce shadow banking for non-financial companies? Based on the exit perspective of implicit government guarantee

As China’s economy enters the stage of high-quality development, the sustainability of development becomes increasingly important. Therefore, this study takes air quality index as the explanatory variable, the level of shadow banking as the explained variable, and environmental regulation as the intermediary variable to empirically study whether environmental regulation caused by air pollution will affect the shadow banking of non-financial enterprises. The findings suggest that air pollution is likely to strengthen environmental regulation, thereby reducing the level of shadow banking, as air pollution strengthens environmental regulation, leading to the reduction of implicit government guarantees, while enterprises tend to abandon or minimize reliance on these guarantees and reduce leverage. The mechanism test shows that the ESG performance of non-financial firms weakens the process by which air pollution reduces the degree of shadow banking of non-financial firms, while the short-sightedness of management enhances this process. Heterogeneity analysis shows that this process is more significant under the effect of market-driven environmental regulation and in private enterprises and enterprises in regions with large industrial scale. Therefore, the policy implication is that government should continue to strengthen environmental law enforcement in future supervision, as this can not only reduce pollution levels but also reduce systemic financial risks. Enterprises should also increase their sense of social responsibility.