Abstract
ABSTRACT In this paper, we use public entrusted loan announcements and financial data on China listed A-shares to identify shadow banking participation as a new factor affecting firms’ stock market crash risks. We also provide new sets of empirical evidence to the inconclusive literature about how borrowing and lending behaviours affect investors’ perceptions and the firms. We find that both borrowing and lending of small firms reduce firms’ stock market crash risks, and lending of big firms increases firms’ crash risks. Moreover, our results on affiliated transactions suggest the existence of both risk-sharing and negative spillover effects in Chinese business groups. The results are robust to different fixed effects, different standard error clustering specifications, alternative crash risk measures and additional control variables.
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