Reassessing non-financial firms’ shadow banking in the Chinese stock market: From Re-lending to cash-liquidity allocation

Shadow banking has long existed and gained significant attention since the 2008 Global Financial Crisis. Beside non-bank financial institutions, non-financial enterprises have been emerging as substantial lenders, particularly during the post-crisis recovery period. Existing literature emphasizes these enterprises' reliance on bank loans to re-lend through shadow channels, ignoring other sources for their lending. However, during the “back-to-normal” phase following the crisis, the continued engagement of non-financial enterprises raises the question: do they still rely on bank loans to finance their lending, or have they adopted alternative channels? We construct a conceptual model of internal capital allocation and use the panel data from Chinese listed firms spanning 2012 to 2023 to investigate the motivation of the shadow banking activities. The empirical evidence shows that the so-called shadow banking of non-financial enterprises is primarily funded through internal cash, rather than external bank borrowing. These activities align more closely with strategic cash management than conventional shadow banking in nature. Our study reframes the nature of corporate shadow lending and highlights the central role of internal liquidity in shaping firms’ financialization behavior.