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The effect of the government's green grip: Evidence from government-initiated corporate environmental ratings and corporate debt financing

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  • Liu, Xiaojuan
  • Chen, Xiaoyijing
  • Deng, Baijun

Abstract

The Chinese government has initiated corporate environmental ratings to curb environmental pollution. We investigate the impact of such ratings as a type of government green grip on corporate debt consequences. We provide solid evidence that government-initiated corporate environmental ratings help environmentally friendly companies obtain more long-term loans and reduce the cost of debt. Lenders view a healthy environment as a signal of good credit; accordingly, they offer greener companies more favorable debt financing terms. The positive effect of government-initiated corporate environmental ratings is magnified by other government green-credit policies and the external financing environment. Overall, this study provides a valuable understanding of government-initiated corporate environmental ratings and corporate financing consequences.

Suggested Citation

  • Liu, Xiaojuan & Chen, Xiaoyijing & Deng, Baijun, 2023. "The effect of the government's green grip: Evidence from government-initiated corporate environmental ratings and corporate debt financing," Pacific-Basin Finance Journal, Elsevier, vol. 80(C).
    • Handle: RePEc:eee:pacfin:v:80:y:2023:i:c:s0927538x2300121x
    DOI: 10.1016/j.pacfin.2023.102055
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    More about this item

    Keywords

    Corporate environmental performance; Cost of debt; Long-term loans;
    All these keywords.

    JEL classification:

    • G32 - Financial Economics - - Corporate Finance and Governance - - - Financing Policy; Financial Risk and Risk Management; Capital and Ownership Structure; Value of Firms; Goodwill
    • Q56 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Environmental Economics - - - Environment and Development; Environment and Trade; Sustainability; Environmental Accounts and Accounting; Environmental Equity; Population Growth

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