Abstract
Compared with developed countries, capital markets and financial systems in developing countries are often labeled as underdeveloped. Firms need funds to operate and to invest for pollution abatement. Private, small and medium-sized enterprises (SMEs) generally face financing constraints in China, which may be closely related to poor environmental performance in recent years. Based on World Bank survey data from 2011 to 2013, controlling location area, industrial sector, firm scale, and ownership, the influence of financing constraints on firm's environmental performance is examined. It is found that minor obstacles in financing activities don't seem to impair firm's environmental performance. However, moderate and major obstacles undermine firm's environmental performance with high investment costs and biased incentives. The more severe the credit constraint, the higher probability of poor environmental performance is observed. In the end, targeted policy implications with emphasis to provide financing convenience for SMEs are addressed.
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