Summary:
With the development of China's diversified shadow credit market, the non-financial enterprise sector has begun to act as a substantial credit intermediary, becoming the main shadow banking intermediary. The characteristics of shadow banking, such as high leverage, high risk, and information asymmetry, create high uncertainty in the cash flows of the economic entities involved in shadow banking, which intensifies the risk in both the virtual and real economies. Therefore, exploring the economic consequences of the shadow banking activities of non-financial enterprises has important theoretical and practical implications and may help to prevent funds from diverted out of the real economy as well as other systemic financial risks. Using data of non-financial A-share listed companies from 2006 to 2017, this paper attempts to examine the impact of non-financial enterprises' shadow banking activities on their social responsibility activities, and it further explores the mechanism through which policy continuity affects the interaction between enterprises' shadow banking and social responsibility activities. This paper's main contributions are as follows. First, it expands the research on non-financial enterprises' shadow banking activities. Second, it enriches the understanding of the effects of policy continuity on micro enterprise behavior and attempts to identify the mechanism through which policy continuity affects the relationship between non-financial enterprises' shadow banking and social responsibility activities. Third, it examines the two channels of relative risk between the finance and entity economies and signal transmission. The results show that non-financial enterprises' shadow banking activities inhibit social responsibility activities, and this effect is more significant in enterprises with strong market arbitrage motivation, low levels of cooperate governance, and weaker external financing ability. Increased policy continuity weakens the negative relationship between non-financial enterprises' shadow banking and social responsibility activities. The driving mechanisms are as follows. First, increasing policy continuity increases the relative risk of finance investment in the real economy, which weakens the negative effect of non-financial enterprises' shadow banking business on social responsibility activities. Second, an increase in policy continuity enhances the positive information signal that enterprises send to the public through their social responsibility activities. This paper not only enriches the research on shadow banking, non-financial enterprise financialization, and other academic fields, but also it has important implications for policy makers seeking to improve policy continuity and stability, restrain a shift “from real to virtual” economies, and prevent systemic financial risk agglomeration. Accordingly, this paper puts forward the following policy suggestions. First, strengthen the information disclosure on the financial assets held by non-financial enterprises and enhance the transparency of financial statements. Second, improve the corporate governance structure of non-financial enterprises and strengthen their awareness of corporate social responsibility. Third, enhance the stability and continuity of policies and guide the formation of reasonable expectations. Fourth, continuously promote the structural reform of the financial supply side, optimize the financing structure, strengthen the functional supervision of the shadow banking system, and guide the finance sector to better serve the real economy.
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