Based on the sample of China’s Shanghai and Shenzhen A-share non-financial listed companies from 2015 to 2022, this study examines the regulatory spillover effect of annual report inquiry letters on the shadow banking activities of companies connected through common institutional ownership. The research finds that after a listed company receives an annual report inquiry letter, the degree of shadow banking activities among its non-recipient peer companies with common institutional ownership significantly reduces. Mechanism analysis indicates that annual report inquiry letters curb shadow banking by enhancing the monitoring efficiency of connected companies, promoting investment in the real economy. Heterogeneity analysis reveals that this effect is more pronounced when the common institutional investors are long-term oriented, have a larger peer network, the competition among common institutional investors is intense, the company accounts for a significant portfolio weight, or key companies within the portfolio receive inquiry letters. Furthermore, the regulatory spillover effect is stronger on the shadow banking activities related to credit intermediation.