Shadow banking Regulation and the stock price synchronicity --A quasi-natural experiment based on China's new asset management regulation

Abstract

Shadow banking has somewhat compensated for China's lack of formal financial development. However, it may also amplify the financial system's risks, which runs counter to the initial expectation of macroprudential management. With the regulation of shadow banking in China under the New Asset Management Regulation (NAMR), this paper investigates the impact of shadow banking regulation on the stock price synchronicity of China's A-share listed companies and its mechanism from 2013 to 2021. The mechanism test finds that shadow banking regulation can reduce stock price synchronicity by reducing firms' agency costs and improving information transparency. Our study enriches the related research on shadow banking regulation. It provides evidence on the microeconomic consequences of shadow banking from the perspective of stock price synchronicity for other developing countries and emerging economies.

Keywords

• Shadow banking regulation
• New Asset Management Regulation
• Stock price synchronicity
• Agency costs
• Information transparency