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Does the green loan policy boost greener production? – Evidence from Chinese firms

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  • Zhang, Dongyang

Abstract

The trade-off between stable economic growth and environmental protection has been widely discussed in China, with the rest of the world paying closer attention to the emerging norms of this discourse. Government intervention and policy guidance are believed necessary in spurring firms to adopt more sustainable production approaches. This paper investigates the impact of the Green Loan Guide policy on pollution and firm performance. More specifically, we explore the impacts of the People's Bank of China's Green Loan Guide policy on Chinese firms using information from Chinese manufacturing firms for the period 2010–2017 derived from public databases and individual firms. We apply a difference-in-differences method to analyze the effect of the policies on pollution reduction and to avoid endogeneity problems. Our empirical findings indicate that the green loan policy significantly increases investments that curb pollution and encourages firms to reduce emissions, introduce new energy sources, and demonstrate greater environmental responsibility. We further show that investment in pollution control crowds out investment in fixed and intangible assets due to the financial constraint mechanism, and that it decreases sales growth, return on assets, and return on sales.

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  • Zhang, Dongyang, 2022. "Does the green loan policy boost greener production? – Evidence from Chinese firms," Emerging Markets Review, Elsevier, vol. 51(PB).
    • Handle: RePEc:eee:ememar:v:51:y:2022:i:pb:s156601412100090x
    DOI: 10.1016/j.ememar.2021.100882
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