Non-Financial Firms’ Shadow Banking Practices and Green Technology Innovation

Non-financial enterprises in China increasingly participate in the shadow banking system. Such crossover behavior leads to many consequences. By using a sample of Chinese non-financial listed companies from 2012 to 2022, we evaluate the impact of non-financial enterprises’ shadow banking on green technology innovation. Moreover, we provide insights into how a better legal environment affects the association between non-financial companies’ shadow banking activities and green technology innovation. The empirical findings reveal that shadow banking involvement hinders non-financial firms’ green technology innovation, potentially via the mechanisms of decreasing operational performance, increasing default risk, and reducing their motivation to fulfill social responsibility. We also find that this adverse effect becomes more pronounced among state-owned enterprises, small and medium-sized enterprises, and firms showing weaker internal governance efficiency. At the same time, policymakers can mitigate it by improving the legal environment, optimizing intra-firm resource allocation, and fostering sustainable economic growth.