Sushanta Mallick

Queen Mary, University of London

Abstract: Despite the recent proliferation of shadow loans to listed firms globally, their impact on firm outcomes is yet to be fully explored. This paper therefore uses a loan transactions dataset from China to identify firms that use shadow loans excessively (shadow-bank firms). Using a staggered Difference-in-Differences (DID) approach, we show that shadow-bank firms experience a higher default probability and lower profitability, productivity, investment, and employment growth after acquiring shadow loans.  However, more productive and technology-intensive firms do not face similar adverse outcomes after obtaining such shadow loans. Since shadow loans are more costly than bank loans, shadow-bank dependent firms that fail to generate sufficient returns face adverse outcomes.