Bank Competition and Corporate Environmental Performance

Abstract

In this study, we provide one of the first evidence on the effects of bank deregulation on corporate environmental performance. We use a unique dataset that contains rich information on firms’ toxic emissions and exploit bank branching deregulation in China. We find that compared with firms with lower exposure, firms more exposed to this deregulation improve their environmental performance, as measured by lower chemical oxygen demand (COD) emission intensity after deregulation. We further demonstrate that these firms’ production efficiency increases and the ratio of tangible assets to total assets decreases, which suggests that upgrading technology and asset mix are the main channels. To improve the efficiency of the banking system, many developing countries are undergoing or moving toward liberalizing it. By focusing on firm environmental performance, we document an important but unanticipated consequence of bank deregulation, and the result also provide policy implications for the burgeoning reform in green finance.