Greening Through Finance?

57 Pages Posted: 8 Jun 2021

See all articles by Haichao Fan

Haichao Fan

Fudan University - School of Economics

Yuchao Peng

Central University of Finance and Economics (CUFE) - School of Finance

Huanhuan Wang

East China Normal University (ECNU)

Zhiwei Xu

Peking University HSBC Business School

Date Written: January 10, 2020

Abstract

This paper investigates how green credit regulation affects firms’ loan conditions and their economic and environmental performance. In a simple theoretical model, with strengthened green credit regulations, banks raise loan interest rates to nonabatement firms. Firms that were formerly indifferent to pollution abatement must predetermined their abatement and production strategies. Using disaggregated firm-level data, we find that, after the reinforcement of green credit regulation, noncompliant firms saw a larger increase in interest rates, decrease in loan amounts, and more difficulty in access to loans. We further find different impacts on large and small firms in terms of their loans and their financial and economic responses. Regarding the impact on firms’ environmental performance, although all of these firms reduced their total emissions, the reductions
are realized in dissimilar ways; large firms reduced their emission intensity by investing more in adopting abatement facilities, while small firms simply choose to produce less.

Keywords: Green Credit, Loan Rate, Environmental Penalty, Firm Size

JEL Classification: G32, Q52, K32, G41

Suggested Citation

Fan, Haichao and Peng, Yuchao and Wang, Huanhuan and Xu, Zhiwei, Greening Through Finance? (January 10, 2020). Journal of Development Economics, Forthcoming, Available at SSRN: https://ssrn.com/abstract=3860603

Haichao Fan (Contact Author)

Fudan University - School of Economics ( email )

600 GuoQuan Road
Shanghai, 200433
China

Yuchao Peng

Central University of Finance and Economics (CUFE) - School of Finance ( email )

Beijing
China

Huanhuan Wang

East China Normal University (ECNU) ( email )

North Zhongshan Road Campus
3663 N. Zhongshan Rd.
Shanghai, 200062
China

Zhiwei Xu

Peking University HSBC Business School ( email )

PHBS 612, Unversity Town,
Nanshan District
Shenzhen, Guangdong
China

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