Bank-Firm Relationship and Corporate Green Innovation: Evidence from China

Abstract

This paper analyzes the correlation between bank-firm relationship and corporate green innovation in heavy pollution industries in China. It is found that bank-firm relationship has positively effect on corporate green innovation. The result is robust to Heckman two-stage analysis and Placebo test. Mechanism analysis shows that bank-firm relationship can reduce information asymmetry between borrower and lender, and foster corporate to obtain more debt financing and advance environmental governance. Moreover, the effect of bank-firm relationship on green innovation is more pronounced for corporate located in the area with poor green finance and low environmental regulatory information. Our findings suggest that bank-firm relationship can promote corporate green innovation and contribute to the development of green finance.