Corporate investment and shadow banking channel of monetary policy

This paper examines the differential impact of monetary policy on investment between state-owned enterprises (SOEs) and non-SOEs in China, a context marked by a transition from quantity-based to interest rate-based monetary policy and the growth of the shadow banking sector. Utilizing a high-frequency, interest-rate-based measure of monetary policy shocks, we find that contractionary monetary policy has a significantly larger negative impact on SOE investment. This differential response is attributed to the distinct financing structures of SOEs and non-SOEs: SOEs' reliance on traditional bank loans, facilitated by implicit government guarantees, renders them more sensitive to monetary tightening, while non-SOEs' dependence on the shadow banking sector mitigates this effect.