Corporate green transformation and bankruptcy risk: Empirical evidence from Chinese manufacturing firms

This study explores the impact and mechanism of corporate green transformation on the bankruptcy risk of Chinese manufacturing firms. Using the entropy weight method, the research constructs a comprehensive green transformation evaluation index based on the developmental stages of Chinese manufacturing firms. It employs panel data spanning from 2010 to 2021 for empirical analysis. We find that green transformation significantly reduces bankruptcy risk among manufacturing enterprises. This effect varies across industries, lifecycle stages, financing constraints, and shareholder structures. Notably, the risk reduction is more pronounced under high regulatory pressure or severe operational challenges. We effectively address the potential issue of reverse causality by applying both a dynamic lag effect test and an instrumental variables approach, with temperature inversion and industrial smoke emissions as instruments. The study reveals that corporate green transformation inhibits bankruptcy risk through the internal mechanism of operating risk and agency costs, with enhanced external market confidence playing a positive moderating role. Recognizing that green transformation may be distorted by greenwashing, we exclude its plausible impact on our results in the further analysis.