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Green finance, loan commitment, and environmental corporate social responsibility in a differentiated duopoly

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  • Kai Zhang
  • Xubei Lian
  • Leonard F. S. Wang

Abstract

We analyze the firms' strategic choice of financing mode in both Cournot and Bertrand competition with pollution externalities. We show that, if the environmental corporate social responsibility (ECSR) firm does not abate, loan commitment financing will be used for ongoing dirty production, and the optimal interest rate is decreasing in the firm's ECSR concerns. However, when the ECSR firm voluntarily chooses a one‐shot abatement‐technology investment, the optimal choice is spot‐market financing. Compared with the case without abatement investment, the firm's finance for the green investment yields higher net consumer surplus and welfare unless the market size is sufficiently small.

Suggested Citation

  • Kai Zhang & Xubei Lian & Leonard F. S. Wang, 2024. "Green finance, loan commitment, and environmental corporate social responsibility in a differentiated duopoly," Managerial and Decision Economics, John Wiley & Sons, Ltd., vol. 45(1), pages 394-413, January.
    • Handle: RePEc:wly:mgtdec:v:45:y:2024:i:1:p:394-413
    DOI: 10.1002/mde.4005
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