Explore of Bank Competition on Non-Financial Enterprises' Financial Capabilities: Shadow Banking as a Moderating Effect

This study examines how competition in the banking sector affects the financial capabilities of non-financial enterprises in China, with a particular focus on the moderating role of shadow banking's financial innovation. Using panel data from 7,250 firm-year observations of Chinese private banks collected from CNRDS, Wind, and CSMAR databases from 2017 to 2022, we apply a fixed-effects model to investigate this relationship. Our findings indicate that increased banking competition significantly enhances non-financial enterprises' financial capabilities, particularly in terms of financing flexibility and capital allocation efficiency. Moreover, shadow banking's financial innovation positively moderates this relationship, strengthening the positive effect of banking competition on firms' financial capabilities. The results are robust across various alternative specifications and endogeneity tests. This study contributes to the literature on financial market competition, corporate finance, and the evolving role of shadow banking in China's financial ecosystem, providing important implications for policymakers and corporate financial management.