The Spillover of Green Credit Disciplining on Corporate Misconduct

40 Pages Posted: 30 Nov 2023 Last revised: 29 Feb 2024

See all articles by Xiaoxu Ling

Xiaoxu Ling

Hong Kong Polytechnic University - School of Accounting and Finance

Tian Min

East China University of Science and Technology (ECUST) - School of Business

Piyush Sharma

Curtin University

Donghua Wang

East China University of Science and Technology (ECUST) - School of Business

Siyuan Yan

East China University of Science and Technology (ECUST) - School of Business

Date Written: February 28, 2024

Abstract

We document the spillover disciplining effects of the green credit on corporate misconduct in addition to environmental violations. Exploiting the staggered green finance reform in China as a quasi-natural experiment, we find that pilot firms exhibit both less probability and frequency of financial misconduct after the green finance reform. We identify multiple economic mechanisms for this causal relationship. First, green credit improves internal governance by decreasing insider stock pledges, real earnings management, and related party transactions. Moreover, green credit results in increased external monitoring from institutional visits, analyst coverage, and media attention. Furthermore, we find that the disciplining effects are more pronounced for firms owned by the state, for firms in highly concentrated industries, and for firms with lower participation of independent directors and higher ownership concentration. Overall, our findings highlight that unique screening and oversight mechanisms associated with green credit could have positive spillovers on general credit governance, and assessing environmental initiatives can further provide visibility into overall accountability, controls, and reporting quality.

Keywords: Corporate Misconduct; Business Ethics; Green Credit; Market Discipline; Accountability

JEL Classification: G28; G38; Q58; M48

Suggested Citation

Ling, Xiaoxu and Min, Tian and Sharma, Piyush and Wang, Donghua and Yan, Siyuan, The Spillover of Green Credit Disciplining on Corporate Misconduct (February 28, 2024). Available at SSRN: https://ssrn.com/abstract=4631593 or http://dx.doi.org/10.2139/ssrn.4631593

Xiaoxu Ling

Hong Kong Polytechnic University - School of Accounting and Finance ( email )

Hung Hom
Kowloon
Hong Kong

Tian Min

East China University of Science and Technology (ECUST) - School of Business

Shanghai
China

Piyush Sharma

Curtin University ( email )

Australia

Donghua Wang

East China University of Science and Technology (ECUST) - School of Business

Shanghai
China

Siyuan Yan (Contact Author)

East China University of Science and Technology (ECUST) - School of Business ( email )

Shanghai
China

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