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Air pollution and bank loan pricing

Author

Listed:
  • Li, Donghui
  • Sun, Jian
  • Xu, Rui
  • Yuan, Chun
  • Zhu, Liyi

Abstract

Based on a proprietary loan dataset from a nationwide state-owned Chinese commercial bank, this study finds that firms with high air pollutant emissions intensity are charged higher bank loan prices due to increased labor risk and environmental transition costs, which elevate bank lender’s overall risk exposure. The positive impact of such emissions on bank loan pricing is more pronounced in firms with no political connections, those located in regions with weak environmental governance, and classified as non-headquarter clients. Further analyses suggest that air pollution premiums are mainly charged for smoke emissions and credit loans. Moreover, air pollutant emissions significantly reduce the credit availability of borrowing firms and increase the tendency for bank lender to add non-price terms.

Suggested Citation

  • Li, Donghui & Sun, Jian & Xu, Rui & Yuan, Chun & Zhu, Liyi, 2026. "Air pollution and bank loan pricing," Journal of Banking & Finance, Elsevier, vol. 185(C).
    • Handle: RePEc:eee:jbfina:v:185:y:2026:i:c:s0378426626000294
    DOI: 10.1016/j.jbankfin.2026.107655
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    Keywords

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    JEL classification:

    • G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Micro Finance Institutions; Mortgages
    • G32 - Financial Economics - - Corporate Finance and Governance - - - Financing Policy; Financial Risk and Risk Management; Capital and Ownership Structure; Value of Firms; Goodwill
    • Q53 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Environmental Economics - - - Air Pollution; Water Pollution; Noise; Hazardous Waste; Solid Waste; Recycling

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