Shadow banking contraction and employment decisions in manufacturing firms: Empirical evidence from China's new asset management regulations

This study represents the inaugural exploration utilizing the 2018 "New Asset Management Regulation" (NAMR) as a quasi-natural experiment to examine the repercussions of the reduced scale of shadow banking, prompted by the regulation, on the employment scale of enterprises. Analyzing a dataset comprising Chinese manufacturing companies listed from 2015 to 2020, the empirical findings indicate a significant decline in the labor employment scale of companies exhibiting higher financialization levels post-implementation of the NAMR, as opposed to those with lower financialization levels. Mechanism analysis reveals that the policy heightens financing constraints and escalates debt default risks, thereby hindering employment in enterprises. The heterogeneity analysis demonstrates a more pronounced negative impact on employment in companies characterized by higher long-term use of short-term debt, diminished growth prospects, heightened involvement in shadow banking, and increased development levels in local shadow banking. Additionally, the policy primarily limits the employment size in firms that finance or engage in arbitrage through shadow banking, while also reducing the demand for low-educated labor within these firms. This study enhances understanding of the impact of shadow banking on the real economy. Moreover, it offers valuable insights for advancing the standardization and market-oriented development of asset management businesses.