The impact of green credit legislation on business financing: Insights from Chinese polluting firms

Abstract

Introducing sustainable credit protection by companies depends on eco-friendly funding that accelerate businesses' technical development and transformation. This study investigates the sustainable financing roles through green credit legislation which impacted state owned enterprises and non state owned enterprises. We have investigated our hypothesis using the Propensity Score Matching Difference-in-Differences (PSM-DID) model. For this purpose we collected data of businesses listed on the Shanghai and Shenzhen stock exchanges that are country's most polluting publicly listed enterprises between 2009 and 2021. The results of the study reveals that liquid Finance and industrial Credit experienced a meteoric rise while the use of illiquid debt financing has dropped significantly among highly polluting organizations. This pattern has intensified after China introduced its “sustainable credit guidelines.” Additionally, businesses in areas with lower sustainable development indices are more likely to feel the consequences of sustainable credit programs. However, there is still a need for prudent capital flow allocation in response to the personalized financing preferences resulting from the sustainable credit policy at the business level, even if China's sustainable credit rules have unquestionably reduced the use of illiquid debt financing by severely polluting enterprises. Policy implications include improving the direction signalled to these businesses via sustainable funding.