Green credit policy and the cost of equity: evidence from China

Abstract

ABSTRACT This paper examines the impact of green credit policy on the cost of equity for firms by focusing on the 2012 Green Credit Guidelines (GCG2012) in China. Employing a standard difference-in-differences (DID) method and utilizing panel data from 2009 to 2018, we document that the implementation of GCG2012 leads to a higher cost of equity for treated firms identified as ‘two high and one surplus’. Additional analysis confirms the robustness of the finding. This paper adds to the literature by offering micro-level evidence on the implications of green credit policy on firm financing.