Corporate Green Revenue and Syndicated Loan Pricing

Abstract

How do banks contribute to the green economy? Using a unique dataset detailing firms’ revenue exposure to green business activities, we present new evidence that banks demand lower spreads on syndicated loans to firms generating revenues from green products and services. We find evidence consistent with a causal relation by exploiting mandatory ESG disclosure regulations as plausibly exogenous shocks. We find that the green-revenue effects on loan spreads are attributable to firms’ prospects tied to climate change-related opportunities and banks’ environmental orientations. Moreover, we find suggestive evidence that firms with green revenues tend to file more green patents following loan originations. Interestingly, while banks typically perceive green innovations as riskier and demand higher loan spreads, this effect is offset if a firm also generates green revenues. Collectively, our results highlight the pivotal role that banks play in channeling financial resources towards green business practices.

Keywords: Green revenue, loan spread, green economy, ESG disclosure regulations

JEL Classification: G21, G38, Q52, Q55, Q58