Shadow banking activities of non-financial companies and the information content of stock prices

In recent years, corporate investment rate has been declining, and they have been allocating financial capital to the shadow credit market, which lead to accumulation of financial risks. Based on the annual data of non-financial listed companies from 2007 to 2019, this paper explores the impact of non-financial companies’ shadow banking on the information content of stock prices. Results show that shadow banking of non-financial enterprises reduce the information content of stock price, and the above effects are more significant in regions with lower social trust and higher policy uncertainty, private enterprises, and enterprises without political connection. Enterprises engage in shadow banking can impact idiosyncratic information content of stock price through channels of earning management, irrational investor behavior, creditor risk concerns and informed trading; Analysts over-optimism and insider trading can also have an impact on the relationship between shadow banking activities and synchronization of stock price. This paper analyzes economic consequences of non-financial enterprises’ shadow banking activities, thus providing important theoretical support and policy guidance for enhancing signal mechanism of securities market, improving capital market efficiency of resource allocation, deepening financial market-oriented reforms.