Shadow banking development and corporate green innovation: evidence from A-share listed manufacturing companies in China

Government policies in many countries are actively promoting the transition to a green economy, and the influence of shadow banking has become increasingly important in this context. The academic community has sought to determine how shadow banking responds to policy directives, what role it plays in supporting green innovation and whether this influence is positive or negative. This study theoretically examines the impact of shadow banking on corporate green innovation using Chinese A-share manufacturing companies listed on the Shanghai and Shenzhen stock exchanges from 2007 to 2022 as the research sample. We construct traditional instrumental variable (IV) and deep neural network IV models to empirically investigate and causally infer the impact of shadow banking development on corporate green innovation. We also apply the local instrumental variables (LIV) to rigorously test the validity of the IVs used and examine their independence. The robust conclusions are threefold. First, shadow banking development promotes green innovation in manufacturing enterprises, and financing constraints inhibit corporate green innovation. Second, shadow banking development has a heterogeneous impact on corporate green innovation across different provinces, ownership structures, listing types and industry characteristics. Third, shadow banking development promotes corporate green innovation by reducing financing constraints, enhancing innovation efficiency and increasing government subsidies. The findings suggest that amid the regulatory authorities taking measures to prevent potential financial risks, vigorously promoting shadow banking development holds profound policy significance for the green innovation of enterprises and promoting high-quality development.