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Artificial intelligence and corporate shadow banking: Evidence from distorted innovation

Author

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  • Wu, Qingling
  • Guo, Lihua
  • Li, Daming

Abstract

Amid accelerating artificial intelligence (AI) adoption, understanding its impact on corporate shadow banking is crucial for financial stability. Using text analysis of annual reports from 10,013 firm-year observations of Chinese A-share non-financial enterprises (NFEs) between 2007 and 2023 to measure firm-level AI adoption, we find AI significantly expands the scale of corporate shadow banking activities. We trace this effect to a channel of distorted innovation, where AI enhances a firm's distorted innovation capacity while intensifying its distorted innovation tendency. Meanwhile, external shocks have affected this effect in terms of its mechanism. This effect is more pronounced for learning-based AI adoption and contributes to higher overall corporate financial risk. This study identifies micro-level channels linking AI to shadow banking engagement and heightened financial risk, offering evidence-based policy insights for optimizing AI deployment and mitigating systemic risks.

Suggested Citation

  • Wu, Qingling & Guo, Lihua & Li, Daming, 2026. "Artificial intelligence and corporate shadow banking: Evidence from distorted innovation," Technology in Society, Elsevier, vol. 86(C).
    • Handle: RePEc:eee:teinso:v:86:y:2026:i:c:s0160791x2600045x
    DOI: 10.1016/j.techsoc.2026.103256
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    Keywords

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    JEL classification:

    • O33 - Economic Development, Innovation, Technological Change, and Growth - - Innovation; Research and Development; Technological Change; Intellectual Property Rights - - - Technological Change: Choices and Consequences; Diffusion Processes
    • G23 - Financial Economics - - Financial Institutions and Services - - - Non-bank Financial Institutions; Financial Instruments; Institutional Investors
    • G32 - Financial Economics - - Corporate Finance and Governance - - - Financing Policy; Financial Risk and Risk Management; Capital and Ownership Structure; Value of Firms; Goodwill

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