Abstract
In the context of green transformation, climate change and its economic implications are attracting increasing attention. Based on the Trade-off Theory framework, this study examines how climate risk affects firms’ shadow banking activities in emerging markets. This study focuses on emerging market economies, using a panel dataset of Chinese A-share non-financial listed firms from 2007 to 2023 to systematically examine the relationship between climate risk and shadow banking activities, that is, financing conducted outside the formal banking system. The empirical findings reveal that climate risk significantly dampens the shadow banking activities of non-financial firms. Further mechanism analysis suggests that this effect operates through two key channels: the weakening of corporate resilience and adjustments in capital structure decisions. Moreover, the analysis uncovers heterogeneous impacts of climate risk on shadow banking, depending on the quality of information disclosure, industry characteristics, and the degree of financing constraints. This research provides new insights into the evolution of corporate financial behavior under climate risk and offers empirical evidence to support firms in optimizing their financial strategies and enhancing their financial risk management capabilities.