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Green credit policy and investment-cash flow sensitivity: Evidence from a quasi-natural experiment

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  • Zhao, Jing
  • Huang, Jingchang
  • Liu, Feng

Abstract

The green credit policy (GCP) in China aims to achieve green development by reducing credit allocations to heavily polluting enterprises. Using the implementation of the GCP as a shock to the cost of external financing, we conduct a difference-in-differences approach and find that the investment-cash flow sensitivity of heavily polluting enterprises increases significantly after the implementation of the GCP. The effect is more pronounced in firms with high investment opportunities and high financial leverage and in firms without ownership in commercial banks. Our paper provides new insights into the impact of the GCP on financial constraints and contributes to the investment-cash flow sensitivity debate by using an exogenous shock to measure financial constraints. The results suggest that investment-cash flow sensitivity may be a reasonable indicator of financial constraints in the context of China.

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  • Zhao, Jing & Huang, Jingchang & Liu, Feng, 2023. "Green credit policy and investment-cash flow sensitivity: Evidence from a quasi-natural experiment," Finance Research Letters, Elsevier, vol. 52(C).
    • Handle: RePEc:eee:finlet:v:52:y:2023:i:c:s154461232200678x
    DOI: 10.1016/j.frl.2022.103502
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    Cited by:

    1. Lei, Ni & Miao, Qin & Yao, Xin, 2023. "Does the implementation of green credit policy improve the ESG performance of enterprises? Evidence from a quasi-natural experiment in China," Economic Modelling, Elsevier, vol. 127(C).
    2. Zhao, Yiyun, 2023. "Does the Antimonopoly Law improve companies’ cash-holding management efficiency? Empirical evidence from Chinese listed companies," Finance Research Letters, Elsevier, vol. 55(PB).

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    More about this item

    Keywords

    Green credit policy; Investment-cash flow sensitivity; Financial constraints; Heavily polluting enterprises;
    All these keywords.

    JEL classification:

    • G31 - Financial Economics - - Corporate Finance and Governance - - - Capital Budgeting; Fixed Investment and Inventory Studies
    • G32 - Financial Economics - - Corporate Finance and Governance - - - Financing Policy; Financial Risk and Risk Management; Capital and Ownership Structure; Value of Firms; Goodwill
    • E51 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Money Supply; Credit; Money Multipliers

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