Abstract
The shadow banking business of Chinese state-owned enterprises (SOEs) has experienced rapid growth, which we attempt to explain from the perspective of non-state shareholder governance. Using a sample of Chinese A-share listed state-owned manufacturing enterprises (SOMEs) from 2008 to 2018, we test and find that non-state shareholders lead to greater involvement in the shadow banking business of SOMEs. Channel testing shows that by engaging in the shadow banking business, SOMEs will make more profits, and managers are rewarded more handsomely, which supports the profit-seeking hypothesis of non-state shareholders and the self-interest hypothesis of managers. Furthermore, the effect of non-state shareholders in promoting the shadow banking business of SOMEs is to some extent positively associated with the larger return gap between financial investments and productive investments and the tightening monetary policy. Finally, non-state shareholders support the shadow banking business of SOMEs by squeezing out its operating activities, especially innovative investment.
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