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Greening through finance?

Author

Listed:
  • Fan, Haichao
  • Peng, Yuchao
  • Wang, Huanhuan
  • Xu, Zhiwei

Abstract

This paper investigates how green credit regulation affects firms' loan conditions and their economic and environmental performance. In a simple theoretical model, with strengthened green credit regulations, banks raise loan interest rates to nonabatement firms. Firms that were formerly indifferent to pollution abatement must redetermine their abatement and production strategies. Using disaggregated firm-level data, we find that, after the reinforcement of green credit regulation, noncompliant firms saw a larger increase in interest rates, decrease in loan amounts, and more difficulty in access to loans. We further find different impacts on large and small firms in terms of their loans and their financial and economic responses. Regarding the impact on firms’ environmental performance, although all of these firms reduced their total emissions, the reductions are realized in dissimilar ways; large firms reduced their emission intensity by investing more in adopting abatement facilities, while small firms simply choose to produce less.

Suggested Citation

  • Fan, Haichao & Peng, Yuchao & Wang, Huanhuan & Xu, Zhiwei, 2021. "Greening through finance?," Journal of Development Economics, Elsevier, vol. 152(C).
  • Handle: RePEc:eee:deveco:v:152:y:2021:i:c:s0304387821000614
    DOI: 10.1016/j.jdeveco.2021.102683
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    More about this item

    Keywords

    Green credit; Loan rate; Environmental penalty; Firm size;
    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
    • Q52 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Environmental Economics - - - Pollution Control Adoption and Costs; Distributional Effects; Employment Effects
    • K32 - Law and Economics - - Other Substantive Areas of Law - - - Energy, Environmental, Health, and Safety Law
    • G41 - Financial Economics - - Behavioral Finance - - - Role and Effects of Psychological, Emotional, Social, and Cognitive Factors on Decision Making in Financial Markets

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