Are Banks Really Special? Evidence from a Natural Experiment
37 Pages Posted: 8 Dec 2018 Last revised: 3 Apr 2021
Date Written: April 03, 2021
Australia’s Kyoto Protocol ratification (KPR) in December 2007 mandates the country to reduce greenhouse gas (GHG) emissions, hence affecting firms in the highest emitting industries. We exploit the KPR as an exogenous increase in environmental risk facing the highest GHG emitters. We find that the stock market reactions to bank loan announcements significantly increase after the KPR for these emitters relative to non-emitters. The effect is stronger for borrowers with higher information asymmetry and financial constraints. The evidence suggests that banks can certify their borrowers’ environmental risk through their loan approvals, which confirms the certification role of banks.
Keywords: Bank loan announcement; Abnormal return; Environmental risk
JEL Classification: G14, G21, G32, Q51
Suggested Citation: Suggested Citation