Shadow Banking Activities in Non-Financial Firms: Evidence from China

Posted: 14 Jun 2016

See all articles by Julan Du

Julan Du

The Chinese University of Hong Kong (CUHK) - Department of Economics

Chang Li

The Chinese University of Hong Kong (CUHK)

Yongqin Wang

School of Economics, Fudan University

Date Written: 2015

Abstract

This study examines a particular form of shadow banking activities performed by non-financial firms, in which firms borrow in order to lend, acting as financial intermediaries. We identify the existence of such re-lending business by investigating the relationship between financial assets and financial liabilities based on pecking order theory and also the correlation between liquidity assets and fixed business investments, and supplement the evidences by tracking the trace of re-lending cash flows in financial statements. We find that these particular shadow banking activities are prevalent across Chinese firms, especially in state-owned enterprises, maybe due to better access to financial markets. These results are consistent after inclusion of monetary policy indicators, which are exogenous to non-financial firms. Yet tight monetary policies appear to adversely affect the development of re-lending business since firms obtain less external funds for lending. Meanwhile, growth opportunities, large shareholders and external finance dependence all impede firms to deeply engage in the re-lending business. We shed some light on the economic consequence of the business and observe that the larger scale of re-lending business is accompanied by higher ROA after 2006, when related-party loans are cleaned.

Suggested Citation

Du, Julan and Li, Chang and Wang, Yongqin, Shadow Banking Activities in Non-Financial Firms: Evidence from China (2015). First Annual Volatility Institute at NYU Shanghai (VINS) Conference - 2015. Available at SSRN: https://ssrn.com/abstract=2795662

Julan Du (Contact Author)

The Chinese University of Hong Kong (CUHK) - Department of Economics ( email )

Shatin, N.T.
Hong Kong

Chang Li

The Chinese University of Hong Kong (CUHK)

Shatin, N.T.
Hong Kong
Hong Kong

Yongqin Wang

School of Economics, Fudan University ( email )

600 GuoQuan Road
Shanghai, 200433
China
021-65643054 (Phone)

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