Regulatory tightening and corporate risk-taking: Evidence from China's asset-management rules

Firms increasingly participate in financial markets through financial asset investments, raising concerns about excessive risk-taking in emerging economies. This study examines how macroprudential regulation affects corporate risk-taking by exploiting China's 2018 Asset-Management Rules (AMR) as a quasi-natural experiment. Using a difference-in-differences framework and Chinese A-share firm-level data from 2013 to 2023, we find that the AMR significantly reduces corporate risk-taking, particularly for firms with higher pre-reform financialization. In the preferred specification, a one-standard-deviation increase in pre-reform financialization is associated with a meaningful decline in stock-return volatility after the reform. The results remain robust to alternative risk-taking measures, different clustering strategies, propensity score matching, placebo tests, and controls for lagged volatility. Mechanism analyses show that the effect mainly operates through a market-discipline channel: regulatory tightening increases price impact and reduces market liquidity, raising transaction-level trading frictions that discourage speculative risk-taking. Although the AMR also reduces firms' shadow-banking exposure, this balance-sheet adjustment plays a secondary role. Further analyses reveal heterogeneous effects across ownership structures, regions, and industries, and show that firms with stronger artificial intelligence capabilities or tighter financing constraints exhibit greater resilience to regulatory tightening. These findings provide new evidence on how macroprudential regulation influences corporate risk-taking in emerging markets.