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How does strict financial supervision affect corporate green credit: Empirical evidence from the new capital management regulation

Author

Listed:
  • Liang, Yanzi
  • Le, Han
  • Lu, Zheng

Abstract

As global economies confront the simultaneous problems of climate urgency and financial instability, green financing is crucial to direct money towards sustainable growth. The unregulated growth of shadow banking, characterized by obscure and high-risk financial intermediation, has distorted company goals toward speculative profits, neglecting investments in environmental innovation. The 2018 new capital management regulation in China was a significant initiative to address systemic risks in shadow banking and adjust incentives for green finance. This study demonstrates how the new capital management regulation eliminated arbitrage-driven clandestine activities, reallocating institutional resources to pollution mitigation, renewable energy, and circular economy projects. The research empirically validates the regulation's transformative effect on corporate credit behavior, highlighting the efficacy of policy-driven financial reforms in aligning profit objectives with ecological limits. These results provide a framework for worldwide policymakers using regulatory structures to drive green transitions. This demonstrates that effective market governance can harmonize economic vitality with ecological sustainability throughout increasing climatic catastrophes.

Suggested Citation

  • Liang, Yanzi & Le, Han & Lu, Zheng, 2025. "How does strict financial supervision affect corporate green credit: Empirical evidence from the new capital management regulation," Finance Research Letters, Elsevier, vol. 86(PB).
    • Handle: RePEc:eee:finlet:v:86:y:2025:i:pb:s1544612325015776
    DOI: 10.1016/j.frl.2025.108323
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