Proximity Matters: How External Auditing Impacts Shadow Banking Activities of Chinese Commercial Banks
研究发现审计师与银行客户的地理距离越近，银行影子银行业务越少，因为近的审计师风险感知更强，会收取更高审计费、披露更多关键审计事项，从而抑制高风险银行的影子银行活动，但也会导致部分影子银行从表内转向表外。
We explore whether and how external auditing influences bank clients’ shadow banking activities by focusing on the impact of auditor–client geographic proximity. Using data from Chinese banks between 2000 to 2020, our findings indicate that the shadow banking activities of commercial banks decrease as auditor–client distance decreases, supporting the professional competence‐enhancement effect. Mechanism analyses indicate that nearby auditors have a higher perception of risk and thus charge more audit fees and disclose more key audit matters and suppress shadow banking activities more for bank clients with higher risk. Analyses of heterogeneity show that the reduction effect is more pronounced for auditors with lower capabilities, banks facing higher competition, and banks located further from regulators. The path analysis demonstrates that geographic proximity between auditors and bank clients can reduce systemic risk by decreasing shadow banking activities. Finally, we provide further evidence that the reduction in on‐balance‐sheet shadow banking driven by nearby auditors leads to a partial shift toward off‐balance‐sheet shadow banking activities. These findings offer valuable insights for regulators seeking to control shadow banking systems and reduce systemic risks.