Exploring the role of fintech development in reducing firm pollution discharges: Evidence from Chinese industrial firms

Abstract

The persistent issue of industrial pollution in China's environment has prompted industrial firms to explore new opportunities for addressing this problem through the rapid growth of financial technology (fintech). In this study, we construct a city-level fintech index using Baidu News Advanced Search and combine it with Chinese industrial firm data from 2004 to 2014, along with other city-level data, to empirically explore how fintech affects firm pollution. Our baseline results show that fintech can significantly reduce firm pollution discharges, more precisely, a 1% increase in fintech is associated with a reduction in firm pollution by 0.062%. The robustness of our findings has been confirmed through various strategies. We have identified the underlying mechanisms of fintech's impact on firm pollution discharges and confirmed that it significantly reduces such discharges through export competitiveness, environmental protection investment, and technological innovation. Furthermore, we investigate the heterogeneous effects of fintech development and find that it leads to more pronounced reductions in pollution discharges for firms with older age, for firms with larger scale, for non-state-owned firms, for firms located in both the eastern and western regions, for firms located in the areas with a higher level of competition among banks and those located in the areas with a higher level of economic growth. However, the development of the tertiary sector significantly weakens the reduction effect of fintech on firm pollution discharges. Our research provides theoretical support for exploring emerging and viable approaches to mitigating firm pollution from a financial perspective and offers promising implications for harnessing the positive externalities of fintech.