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Shadow banking of non-financial firms and labor income share: An inverted U-shaped relationship

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  • Zhong, Huaming
  • Al-Duais, Zinb Abduljabbar Mohamed
  • Guo, Yaoting

Abstract

How shadow banking of non-financial firms, as a form of informal finance, affects labor income compensation and intra-firm income inequality is a significant issue faced by developing countries such as China. This paper empirically analyzes the impact of shadow banking of non-financial firms on labor income share and its heterogeneity, using annual data from non-financial listed companies in China's A-share market from 2007 to 2021. The empirical results indicate that when the level of shadow banking of non-financial firms is low, it has a significant positive effect on labor income share. However, at higher levels, there is an inverted U-shaped relationship between shadow banking of non-financial firms and labor income share. The heterogeneity analysis shows that when the level of shadow banking of non-financial firms is high, it increases the labor income share for executives but decreases it for ordinary employees, thus exacerbating income inequality within firms between executives and ordinary employees. Compared with the central, western, and northeastern regions, shadow banking of non-financial firms has a significantly positive impact on labor income share in the eastern region. The empirical results of this paper suggest that the growth in labor income share driven by the continuous expansion of shadow banking of non-financial firms is unsustainable in the long run. It is necessary to strengthen the regulation of financial institutions, promote the standardization and transparency of shadow banking development, and indirectly achieve the goal of increasing the proportion of labor compensation in the primary distribution of income.

Suggested Citation

  • Zhong, Huaming & Al-Duais, Zinb Abduljabbar Mohamed & Guo, Yaoting, 2025. "Shadow banking of non-financial firms and labor income share: An inverted U-shaped relationship," International Review of Economics & Finance, Elsevier, vol. 100(C).
    • Handle: RePEc:eee:reveco:v:100:y:2025:i:c:s1059056025002795
    DOI: 10.1016/j.iref.2025.104116
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    References listed on IDEAS

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    1. Zhong, Huaming & Al-Duais, Zinb Abduljabbar Mohamed & Peng, Biyu, 2023. "The impact of idiosyncratic risk on corporate financialisation——Evidence from China," International Review of Financial Analysis, Elsevier, vol. 86(C).
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    4. Fisman, Raymond & Svensson, Jakob, 2007. "Are corruption and taxation really harmful to growth? Firm level evidence," Journal of Development Economics, Elsevier, vol. 83(1), pages 63-75, May.
    5. Han, Xun & Hsu, Sara & Li, Jianjun & An, Ran, 2023. "Economic policy uncertainty, non-financial enterprises' shadow banking activities and stock price crash risk," Emerging Markets Review, Elsevier, vol. 54(C).
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    Cited by:

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    JEL classification:

    • E22 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Investment; Capital; Intangible Capital; Capacity
    • G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Micro Finance Institutions; Mortgages
    • G31 - Financial Economics - - Corporate Finance and Governance - - - Capital Budgeting; Fixed Investment and Inventory Studies

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