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Lost green leaders: Is China's green financial regulation efficient?

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  • Wang, Wen
  • Pan, Qi
  • Xie, Xiaoming

Abstract

We examine China's Green Credit Policy, a green finance instrument that incentivizes firms' environmental performance through conditional financial support. Using firm-level longitudinal data and a difference-in-differences design, we find that while regulated enterprises experienced a 2.3% annual increase in the ratio of green to total patents, their average patent citations decreased by 0.079 per year. Low-quality green innovations, despite securing financial support, caused negative spillover effects by crowding out other innovations and realigning green innovators. Analyzing the policy's effects across firms at varying distances from the green technology frontier, we identify misalignment and inefficiency in green credit allocation. Firms with stronger green innovation capabilities experienced a more pronounced decline in both the quantity and quality of their green innovations.

Suggested Citation

  • Wang, Wen & Pan, Qi & Xie, Xiaoming, 2025. "Lost green leaders: Is China's green financial regulation efficient?," International Journal of Industrial Organization, Elsevier, vol. 103(PB).
    • Handle: RePEc:eee:indorg:v:103:y:2025:i:pb:s0167718725000554
    DOI: 10.1016/j.ijindorg.2025.103189
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    References listed on IDEAS

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    Keywords

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    JEL classification:

    • G28 - Financial Economics - - Financial Institutions and Services - - - Government Policy and Regulation
    • O31 - Economic Development, Innovation, Technological Change, and Growth - - Innovation; Research and Development; Technological Change; Intellectual Property Rights - - - Innovation and Invention: Processes and Incentives
    • Q55 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Environmental Economics - - - Environmental Economics: Technological Innovation
    • Q58 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Environmental Economics - - - Environmental Economics: Government Policy

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