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Managing financing costs and fostering green transition: The role of green financial policy in China

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  • Peng, Wei
  • Xiong, Langyu

Abstract

In compliance with emerging environmental imperatives, promoting sustainable development is long overdue and pivotal in today’s world. Financial policy works closely within this global discourse, but information on how it works at the micro level to achieve a green transition is still limited. Based on the environmental, social, and governance framework, we characterize the central bank eligible collateral framework as a quasi-natural experiment to determine the effect of green financial policy on firms’ bond financing costs and long-term green transition. The findings reveal a significant decline in the bond spread for green bonds and an increase in brown bonds, demonstrating the existence of the green premium. This relationship becomes pronounced when we explore the moderating effect of firms’ operational volatility and the scale of their long-term loans. We also find substantial heterogeneity in policy impacts stemming from variations in firms’ green innovation activities. Our findings thus provide insights into the role of a sound green policy in achieving green transition and sustainable growth.

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  • Peng, Wei & Xiong, Langyu, 2022. "Managing financing costs and fostering green transition: The role of green financial policy in China," Economic Analysis and Policy, Elsevier, vol. 76(C), pages 820-836.
    • Handle: RePEc:eee:ecanpo:v:76:y:2022:i:c:p:820-836
    DOI: 10.1016/j.eap.2022.09.014
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    More about this item

    Keywords

    Green financial policy; Green transition; Bond spread; Financing cost;
    All these keywords.

    JEL classification:

    • G18 - Financial Economics - - General Financial Markets - - - Government Policy and Regulation
    • G32 - Financial Economics - - Corporate Finance and Governance - - - Financing Policy; Financial Risk and Risk Management; Capital and Ownership Structure; Value of Firms; Goodwill
    • O13 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development - - - Agriculture; Natural Resources; Environment; Other Primary Products
    • P28 - Political Economy and Comparative Economic Systems - - Socialist and Transition Economies - - - Natural Resources; Environment
    • Q58 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Environmental Economics - - - Environmental Economics: Government Policy

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