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Actions speak louder than words: Environmental law enforcement externalities and access to bank loans

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  • Wu, Xiting
  • Luo, Le
  • You, Jiaxing

Abstract

By exploiting the staggered city-level establishment of specialized environmental courts in China as exogenous shocks and using a difference-in-differences research design, we find that an increase in the efficiency of environmental enforcement leads to a decrease in companies’ access to bank loans. The channel tests show that these same shocks lead to an increase in environmental litigation, operational and reputational risk. The cross-sectional analyses also reveal consistent evidence. Collectively, our findings suggest that the environmental mandate has important externalities for bank lending decisions, indicating that the costs of environmental enforcement go beyond reducing environmental pollution.

Suggested Citation

  • Wu, Xiting & Luo, Le & You, Jiaxing, 2023. "Actions speak louder than words: Environmental law enforcement externalities and access to bank loans," Journal of Banking & Finance, Elsevier, vol. 153(C).
    • Handle: RePEc:eee:jbfina:v:153:y:2023:i:c:s0378426623001061
    DOI: 10.1016/j.jbankfin.2023.106882
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    More about this item

    Keywords

    Environmental enforcement; Bank loan; Environmental risk; China;
    All these keywords.

    JEL classification:

    • G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Micro Finance Institutions; Mortgages
    • Q51 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Environmental Economics - - - Valuation of Environmental Effects
    • Q56 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Environmental Economics - - - Environment and Development; Environment and Trade; Sustainability; Environmental Accounts and Accounting; Environmental Equity; Population Growth
    • K41 - Law and Economics - - Legal Procedure, the Legal System, and Illegal Behavior - - - Litigation Process

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