The impact of green credit guidelines on environmental performance: Firm-level evidence from China

Abstract

The Green Credit Guidelines (GCG) regulates the environmental behaviour of firms with high pollution, high energy consumption, and surplus production capacity (known as “two high and one surplus”, THOS) through environmental and social risk assessment and credit management, thereby improving firms' environmental performance. Adopting the panel data of 461 Chinese A-share listed firms from 2008 to 2020 and the Difference-in-Differences (DID) model, this paper employs the promulgation of GCG in China as a quasi-natural experiment to investigate the effect of GCG on THOS firms' environmental performance and its potential mechanisms. The main findings are reported as follows. Firstly, the promulgation of GCG significantly improves the THOS firms' environmental performance. Secondly, after dividing the firms' environmental performance into the environmental strengths and concerns, the policy effect is stronger on environmental strengths that focus on process control. Thirdly, the firms' environmental performance improvement effect of the GCG is mainly achieved by promoting green innovation and exacerbating financing constraints. Finally, the improvement effect of the GCG on firms' environmental performance is more pronounced in firms with weaker external monitoring, environmental information disclosure and lower capital dependence.