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When green finance meets banking competition: Evidence from hard-to-abate enterprises of China

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  • Zhou, Bo
  • Zhang, Cheng

Abstract

Theoretically, banking competition improves the allocation of financial resources, thus increasing the effectiveness of green finance. In this paper, this argument is empirically investigated in the Chinese context. A unique data set containing the banks' geographical location around enterprises is used to measure banking competition, and the mixed impacts of green finance and banking competition on hard-to-abate enterprises are regressed. The results show that banking competition significantly enabled green finance to decrease firm financial performance. The results remained robust after a number of tests and results, and were found to be more apparent among smaller-sized and less financially constrained enterprises. Analysis of the underlying mechanism suggests a significant role of decreasing bank credit and increasing interest payable. Notably, banking competition also significantly assisted green finance's effect on promoting firm-level green innovation. These findings highlight the exploitable role of banking competition for effective green finance, especially in emerging market countries with developing banking systems.

Suggested Citation

  • Zhou, Bo & Zhang, Cheng, 2023. "When green finance meets banking competition: Evidence from hard-to-abate enterprises of China," Pacific-Basin Finance Journal, Elsevier, vol. 78(C).
    • Handle: RePEc:eee:pacfin:v:78:y:2023:i:c:s0927538x23000203
    DOI: 10.1016/j.pacfin.2023.101954
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    2. Xiuli Sun & Cui Zhou & Zhuojiong Gan, 2023. "Green Finance Policy and ESG Performance: Evidence from Chinese Manufacturing Firms," Sustainability, MDPI, vol. 15(8), pages 1-27, April.

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