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The green advantage: mapping the profit power of green credit in commercial banks

Author

Listed:
  • Yamin Li

    (East China Normal University)

  • Guo Wu

    (Sanda University)

Abstract

We examine the positive effect of green credit on bank profitability using firm-level data from Chinese A-share listed commercial banks during 2007–2022. We specifically delve into the income and cost effect channels both theoretically and empirically. The findings reveal that: (1) The significant positive effect of green credit on bank profitability is primarily through the income effect, while the anticipated cost effect remains undetected; (2) the results are robust across multiple tests and endogeneity treatments; (3) the positive effect of green credit is significant for small banks but is not evident among state-owned and joint-stock banks; (4) the difference-in-differences (DID) analysis indicates that the green credit policy issued by China’s central bank effectively enhances commercial banks’ profitability. We also discuss valuable insights for both banks and policymakers.

Suggested Citation

  • Yamin Li & Guo Wu, 2025. "The green advantage: mapping the profit power of green credit in commercial banks," Economic Change and Restructuring, Springer, vol. 58(2), pages 1-29, April.
    • Handle: RePEc:kap:ecopln:v:58:y:2025:i:2:d:10.1007_s10644-025-09869-0
    DOI: 10.1007/s10644-025-09869-0
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