Greening through finance? Based on the dual perspective of external constraints and internal governance

Green credit plays a crucial role in inducing enterprises towards green transformation and accelerating the achievement of “carbon peaking and carbon neutrality goals”. This paper uses Chinese A-share listed enterprises to empirically examine how the green credit policy facilitates the market-driven reversed transmission mechanism based on external constraints and internal governance perspectives and further explore the micro-environmental and economic effects. The results indicate that the Green Credit Guidelines (GCG) policy significantly promotes investment in green projects among green credit-restricted enterprises, mainly driven by external credit constraints and the internal environmental awareness of management. This reverse incentivizing effect varies systematically based on external constraints and internal governance factors, being most evident in state-owned enterprises, firms in competitive credit markets or under strong public environmental pressures, large firms, and those with strong internal controls or more independent directors. Further analysis reveals that firms mainly allocate green investments to develop environmentally beneficial products and technological upgrading. As a result, polluting firms witness improvements in economic performance, green innovation performance, and environmental responsibility. This research provides empirical evidence supporting the effectiveness of green financial systems and the improvement of green credit policy.