Strong financial regulation, shadow banking, and enterprise innovation inputs: A quasi-natural experiment based on the introduction of the "new regulation on asset management"

To prevent systemic financial risk and curb the disorderly expansion of shadow banking and other informal financial businesses, several departments in China jointly issued the new regulation on asset management (NRAM) in 2018. This study considers the financial regulation as a quasi-natural experiment. Using China's Ashare listed companies in Shanghai and Shenzhen Stock Exchanges from 2013 to 2022 as the research sample, this study examines the impact and mechanisms of financial regulation on enterprise innovation input by constructing a difference-in-differences model. The findings indicate that NRAM's implementation significantly increased innovation input in enterprises with a high scale of shadow banking. Mechanism analysis suggests that NRAM encourages innovation input by reducing the scale of shadow banking. Further analysis reveals that the effect of NRAM on innovation input is more pronounced in firms with financial directors and supervisors and in companies located in the central and western regions of China. This study explores the role of financial regulation in guiding enterprise innovation, which has specific theoretical value and practical significance.