Shadow banking participation and stock market crash risk: evidence from China

In this paper, we use public entrusted loan announcements and financial data on China listed A-shares to identify shadow banking participation as a new factor affecting firms' stock market crash risks. We also provide new sets of empirical evidence to the inconclusive literature about how borro...

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Bibliographic Details
Published in:Applied economics 2022-06, Vol.54 (26), p.2969-2982
Main Authors: Cao, Qian, Ma, Bing, Zhu, Yanqi
Format: Article
Language:English
Subjects:
Banking
Borrowing
Clustering
Companies
Economic analysis
Economic theory
entrusted loans
Securities markets
Shadow banking
Small business
Stock market crashes
stock price crash risk
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Summary:In this paper, we use public entrusted loan announcements and financial data on China listed A-shares to identify shadow banking participation as a new factor affecting firms' stock market crash risks. We also provide new sets of empirical evidence to the inconclusive literature about how borrowing and lending behaviours affect investors' perceptions and the firms. We find that both borrowing and lending of small firms reduce firms' stock market crash risks, and lending of big firms increases firms' crash risks. Moreover, our results on affiliated transactions suggest the existence of both risk-sharing and negative spillover effects in Chinese business groups. The results are robust to different fixed effects, different standard error clustering specifications, alternative crash risk measures and additional control variables.
ISSN:0003-6846
1466-4283
DOI:10.1080/00036846.2021.2001420