To What Extent Does Climate Policy Uncertainty Affect Corporate Trade Credit Financing? Evidence from China

Abstract

As the challenges posed by climate change have prompted governments worldwide to formulate and implement a series of climate-related policies, climate policy uncertainty has become a significant factor affecting the economic development in China. However, the effects of climate policy uncertainty on corporate trade credit financing remain unclear ex ante. This paper uses a Chinese Climate Policy Uncertainty (CCPU) index to explore the impact and mechanism of climate policy uncertainty on corporate trade credit financing during 2007-2022. We find that an increase of one standard deviation in climate policy uncertainty decreases trade credit financing by 2.57%. Mechanism analysis indicates that climate policy uncertainty diminishes the quality of corporate accounting information and increases corporate financial distress, thus reducing corporate trade credit financing. Moderation effect tests show that high green innovation and industry competitiveness weakens the negative effect of climate policy uncertainty on corporate trade credit financing. Heterogeneity analysis suggests that the negative effect of climate policy uncertainty on corporate trade credit financing is more pronounced for non-state-owned enterprises, those with low supply chain concentration, and high independent director network centrality. Economic consequence tests demonstrate that the trade credit financing predicament induced by climate policy uncertainty reduces corporate ESG performance and total factor productivity. This study provides implications for policymakers to establish a more stable, transparent and predictable climate policy environment and offers enterprises guidance to enhance risk management abilities.

Keywords: climate policy uncertainty, trade credit, information asymmetry, financial distress, industry competitiveness, green innovation