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Does financial regulation inhibit corporate shadow banking? Evidence from China's new asset management regulations

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  • Zhou, Fu-You
  • Xie, Tingting
  • Zhuang, Jiali
  • Zhang, Yingchun

Abstract

Corporate shadow banking is an important channel through which financial structural risks emerge and evolve, with implications for regulatory effectiveness and the balance between financial innovation and macroeconomic stability. The existing literature has examined its determinants through the lenses of regulatory arbitrage, institutional distortions, and the interaction between risk appetite and profit-seeking incentives. Leveraging a quasi-natural experiment based on the New Regulations on Asset Management (NRAM) in China, this paper identifies the causal effect of financial regulation on corporate shadow banking. The results indicate that the NRAM significantly restrains corporate shadow banking by reducing corporate financialization, lowering debt financing costs, and mitigating maturity mismatches between investment and financing. Overall, the findings suggest that the new regulations promote capital reallocation away from speculative financial arbitrage toward real-sector investment, thereby supporting higher-quality economic development.

Suggested Citation

  • Zhou, Fu-You & Xie, Tingting & Zhuang, Jiali & Zhang, Yingchun, 2026. "Does financial regulation inhibit corporate shadow banking? Evidence from China's new asset management regulations," Economic Modelling, Elsevier, vol. 163(C).
    • Handle: RePEc:eee:ecmode:v:163:y:2026:i:c:s0264999326002804
    DOI: 10.1016/j.econmod.2026.107751
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