Reducing Financing Constraints Research Articles

Green finance and “greenization” of enterprise’s technology: based on evolutionary game theory and empirical test in China

ABSTRACT Green innovation emerges as a pivotal breakthrough for expediting the shift towards a sustainable green development model. Green Finance Reform and Innovation Pilot Zones (GFRIPZ), functioning as a comprehensive policy initiative, harness diverse policy instruments to catalyse the green transformation of enterprises. Constructing a tripartite game model (government, banks, enterprises), this study sheds light on the green evolution of enterprises’ strategic behaviour with the incentive of GFRIPZ, and explains the underlying mechanism of green finance for green innovation. Data of Chinese listed companies (2007–2019) are used to test the mechanism and specific effect of green finance with the difference-in-differences method. The findings reveal that green finance effectively promotes enterprises’ adoption of green innovation strategies. The mechanism appears to be that green finance promotes green innovation by increasing environmental protection investment, reducing financing constraints and improving total factor productivity. Meanwhile, enterprise digitization and industry-finance integration play a positive synergistic role in connecting green finance and green innovation. Besides, the promoting effect of green finance on green innovation in large, non-polluting and mature enterprises is more prominent relative to that in others. This study elucidates the micro-mechanisms underlying green finance system design that foster green innovation and achieve high-quality economic development.

Internal control, financing constraints, and R&D investment: Evidence from Chinese pharmaceutical manufacturing industry

The pharmaceutical industry contributes significantly to global healthcare by researching, developing, and producing medicines, therapies, and treatments that enhance and prolong human life. This research utilizes the annual data of 327 listed pharmaceutical manufacturing companies in China from 2015 to 2022 and conducted an empirical analysis on the impact of internal control on R&D investment and considered the mediating effect of financing constraints. The research results of listed pharmaceutical companies in China are as follows: (1) High-quality internal control can effectively promote R&D investments. (2) A more significant boost in R&D investment can be achieved by implementing internal controls that meet strategic and asset safety objectives. (3) Effective internal controls can alleviate financing constraints and promote research and development investment. (4) Large companies can significantly reduce financing constraints and promote R&D investment through high-quality internal control compared to small- and medium-sized companies. (5) With further research, high-quality internal controls can drive R&D investment by promoting profitability and maintaining good leverage levels. According to the empirical results, this research gives the relevant discussion and suggestions from the aspect of internal control key objectives.

The Impact Mechanism of Free Competition Among Financial Institutions on the Credit Accessibility of Farmers

Using data from rural fixed observation points in Zhejiang Province from 2003 to 2022, this study employs a difference-in-differences (DID) model to explore the impact of free competition among financial institutions on the credit accessibility of farmers and its underlying mechanisms. The results show that free competition among financial institutions significantly improves farmers' credit accessibility. The mechanism analysis indicates that such competition leads to an increase in the number of loan officers, promotes the marketization of certain financial functions, and enhances the dissemination of financial knowledge, thereby improving farmers' financial literacy and reducing financing constraints. Specifically, agricultural industrialization and digitalization both indirectly affect the relationship between free competition among financial institutions and farmers' credit accessibility. Based on these developments, financial institutions are able to provide more efficient and convenient financial services, contributing to the formation of a financial ecosystem. Further analysis reveals a noticeable "siphoning effect" of financial competition in Zhejiang Province, where it significantly promotes the growth of rural credit in the region while suppressing the growth of rural credit in neighboring areas. The study’s conclusions offer both empirical insights into rural financial market reform from the perspective of policy changes and practical reference from the perspective of regional spillovers for the development of rural finance.

Improving corporate profitability from the inside out with environmental performance: an empirical analysis based on Chinese listed company data

This study uses data from listed companies in China from 2008 to 2021, constructs a comprehensive evaluation of corporate environmental performance from the perspective of internal efficiency and externalities based on the text analysis method, and analyzes the impact and mechanism of environmental performance on profitability. In addition, we find that improving environmental performance can significantly increase profitability, especially if the company tackles pollution at the source. Furthermore, the impact of environmental performance on profitability tends to be driven by external markets. Obtaining environmental certifications, awards, and green patents can provide positive feedback and significantly increase profitability. In addition, the mechanism analysis shows that environmental performance affects firm profitability by improving green technology innovation, reducing financing constraints and increasing operating income. Finally, the results of the heterogeneity analysis show that the profitability-enhancing effect of environmental performance is stronger in non-state-owned firms, in clean industries firms and in regions with carbon emission trading.

Digital financial inclusion role to promote renewable energy technology innovation in Chinese prefectural cities: Moderating role of environmental governance

Renewable energy technology innovation is not only an important technical component of Chinese construction of low-carbon energy systems but also a key way to realize long-term, sustainable development. Digital inclusive finance plays an indispensable role in this process. Using panel data of 275 Chinese cities from 2011 to 2022, a two-step systematic methodology is used to assess the impacts and mechanisms of digital financial inclusion and the moderating role of different environmental governance models on qualitative and quantitative renewable energy innovation. The results indicate that digital inclusive finance has an incentive effect on both qualitative and quantitative renewable energy innovations, with a stronger incentive effect on qualitative behavior. This effect can act on renewable energy technology innovation by reducing financing constraints and incentivizing information disclosure mechanisms. Moreover, different forms of environmental governance have a positive, moderating effect, while the effect of top-down environmental governance is more manifested in quantitative renewable energy innovation. Furthermore, heterogeneity analyses show that the incentive effect of digital financial inclusion is more pronounced in the PV sector and the eastern regions. The findings provide a theoretical basis and practical insights that enable policy-makers to formulate relevant renewable energy technology innovation policies and promote low-carbon energy transition.

Market integration and the risk of corporate leverage manipulation: Evidence from China

We examine the impact of market integration on the risk of corporate leverage manipulation, using data on China's A-share listed firms. Our results indicate that market integration reduces this risk. This effect is more pronounced for firms in the Midwest, small firms, and those receiving less analyst attention. We also find that market integration promotes fair competition, reduces financing constraints, and improves information transparency, thereby reducing the risk of corporate leverage manipulation. This study provides a useful reference for promoting the construction of a unified domestic market and maintaining stability in the financial system.

The Real Value of CSR Performance in the NEV Industry: Evidence from China

Corporate social responsibility (CSR) is increasingly becoming a major concern for investors and consumers, prompting companies to devote more resources to community engagement to manage conflict and improve business performance. In this study, we conducted an empirical analysis with a sample of 385 listed companies in China’s new energy vehicle (NEV) industry to analyze the relationship between CSR performance and corporate value (CV). With the ordinary least squares (OLS) regression analysis, our study’s results show a positive relationship between the CSR performance of these companies and corporate value. In addition, our findings indicate a lagged effect in the relationship between CSR and CV. The mechanism analysis suggests that corporate CSR performance helps to improve corporate reputation, reduce financing constraints, and thus increase corporate value. Moreover, high analyst attention and information transparency can enhance the positive effects of corporate CSR. This study contributes to the existing literature and empirical evidence by exploring the correlation between CSR performance and firm value in the context of emerging countries and the NEV industry.

How ESG enhances corporate competitiveness: Mechanisms and Evidence

This paper uses data from Chinese A-share listed companies (2007∼2021) to investigate the impact of ESG performance on corporate competitiveness and its mechanism. Using a fixed-effects model, this paper finds that ESG performance significantly enhances corporate competitiveness. ESG exerts its influence by reducing financing constraints, enhancing corporate reputation, reducing agency conflicts, and promoting innovation. Heterogeneity analysis finds that firm size, financing convenience, local fiscal spending on science, and management ownership moderate this effect. This study enriches research on the drivers of corporate competitiveness and provides empirical support for long-term value investing in ESG in emerging markets.

The adoption of blockchain and financing constraints: Evidence from China

Despite the recognized significance of blockchain in supply chain management literature, there has been a scarcity of studies empirically exploring the link between blockchain adoption and financing constraints. This paper delves into how blockchain adoption influences financing constraints, considering the moderating effects of environmental and firm-specific factors. Utilizing panel data from A-share listed firms in China over the period 2016–2021, our analysis reveals that blockchain adoption notably eases financing constraints. Additionally, we observe a spillover effect: the adoption of blockchain technology by a central enterprise can alleviate financing constraints for affiliated companies within their supply chain, including upstream and downstream firms. Our heterogeneity analysis indicates that the effectiveness of blockchain in reducing financing constraints is more pronounced in environments with robust internal and external governance and higher levels of marketization. Moreover, blockchain adoption can mitigate traditional finance's ownership bias against non-state-owned enterprises and the bargaining power disparities faced by central firms in the supply chain. In addition, in non-high-tech, non-heavy pollution, and non-manufacturing industries, firms can better alleviate financing constraints after adopting blockchain. These findings offer valuable insights for businesses looking to navigate the challenges and opportunities of mitigating financing constraints through blockchain adoption.

Fintech, financing constraints and corporate green innovation

This study comprehensively analyzes the panel data of 4195 listed companies in the A-share market during the period from 2011 to 2022, aiming to explore the mechanism of fintech's influence on corporate green innovation. The study adopts a two-way fixed effects model to confirm the positive association between fintech and corporate innovation, and reveals the role of fintech in promoting corporate innovation output by alleviating financing constraints with the help of a mediated effects model. The findings suggest that FinTech not only directly promotes firms' innovation activities, but also provides important support for firms' innovation by reducing financing constraints, a finding that is confirmed by a series of robustness tests.On this basis, this paper emphasizes that, in the face of market changes brought about by fintech, firms should proactively adapt to and take advantage of these changes to mitigate the pressure of high costs of external financing by maintaining good credit records and reducing information asymmetry. Such a strategy not only helps firms obtain more funds for R&D and innovation, but is also key to achieving sustainable development goals. In addition, policymakers should also recognize the important role of fintech in promoting business innovation and green transformation and take measures to encourage its development and application for the long-term health of the economy.

The impact of digital finance on firm's inefficient investment: Evidence from Chinese A-share listed companies

Using data from China's A-share market, this study identifies that regional digital finance development significantly increases corporate investment inefficiency. This is because digital finance increases enterprises’ access to finance by reducing financing constraints. Digital finance development materially exacerbates corporate investment inefficiency by loosening financial regulations. The deterioration is not significant amid tightening financial regulations. While deterioration is significantly positive in non-state-owned enterprises (non-SOEs), it is not significant in state-owned enterprises (SOEs). The findings suggest that the government and firms must consider consequent investment risks amid digital finance development.

The Impact of ESG Rating Events on Corporate Green Technology Innovation under Sustainable Development: Perspectives Based on Informal Environmental Regulation of Social Systems

Corporate green technology innovation is an important driver to promote the green transformation of the manufacturing industry 4.0 and an important engine to achieve China’s carbon peak, carbon neutrality, and high-quality economic development. Based on the theory of informal environmental regulation of social systems, this study empirically analyzes the impact of ESG rating events on corporate green technology innovation by constructing a multi-period DID model using panel data of Chinese listed companies from 2010 to 2022 as the research sample. The findings suggest that ESG rating events and ESG scores can stimulate corporate green technology innovation. ESG rating uncertainty can inhibit corporate green technology innovation. The mediation effect analysis shows that ESG rating events can stimulate firms’ green technology innovation by reducing financing constraints, increasing the degree of corporate internal control, and increasing R&D investment. In addition, heterogeneity analyses indicate that ESG rating events have a better stimulating effect on the quantity of innovation of non-state-owned enterprises than state-owned enterprises, while the stimulating effect on the quality of innovation of non-state-owned enterprises is inferior to that of state-owned enterprises. Moreover, the innovation stimulation effect of ESG rating events shows a trend of east-high and west-low in geographical distribution. Therefore, the government should accelerate the construction of the ESG rating system, promote the degree of convergence with international standards, and improve the level of enterprises’ utilization of digital technology while paying attention to informal environmental regulation.

Does Green Finance Development Enhance the Sustainability Performance of China’s Energy Companies?

The achievement of China’s “dual-carbon” standard has been devoted to the green transformation and the sustainable growth of energy firms, both of which can be financed by the growth of green financing. This study aims to investigate how the development level of green finance influences the sustainable development performance of listed energy companies in China. It seeks to delve into the underlying mechanisms connecting green finance with financing constraints and, subsequently, with sustainability performance, as well as exploring the relationship between green finance and green total factor productivity in relation to sustainability performance. Additionally, this study will provide strategies and recommendations to enhance the sustainable development capabilities of energy enterprises. This study empirically evaluates the four aspects of sustainable development performance: economic, social, environmental, and innovative performance—as well as its mechanism of action using the fixed-effects pattern with two ways and the mediated-effects pattern using unbalanced panel data from Chinese-listed energy firms spanning from 2011 to 2020. The study discovered that (1) energy firms’ performance in sustainable development is greatly enhanced by the progression of green finance; (2) the advancement of green finance effectively boosts the sustainable development performance of energy companies by reducing financing constraints and enhancing green total factor productivity; (3) a more distinct relationship is evident between the extent of green financing development and the performance of sustainable development within state-owned enterprises. While green finance development has a stronger role in innovative performance for larger energy firms, it has a noticeable proactive impact on the economic, social, and environmental performance of smaller energy enterprises. Based on the study’s findings, this paper presents recommendations for the enhancement of green financing policies and the sustainable enhancement of energy enterprises in China.

Judiciary-driven finance: Quasi-experimental evidence from specialized financial adjudication institutions in China

The "law and finance" paradigm posits that legal institutions play a crucial role in financial development; however, China has long been considered an exception. This study challenges that assumption by examining how improvements in the judiciary affect financial development in China. Using a quasi-natural experiment (i.e., staggered difference-in-difference estimation) over a twenty-year period, we find that the establishment of specialized financial adjudication institutions (i.e., financial courts and tribunals) in certain prefecture-level cities significantly reduces financing constraints for local listed companies. Further heterogeneity tests show that these effects are more pronounced among private enterprises, small and medium-sized enterprises, and companies in the central and western regions. Through the analysis of representative practices and interviews with relevant judges and enterprises, we find that China's financial judiciary demonstrates efficiency and proactiveness. Additionally, political considerations enable courts to regulate finance and maintain stability, improving the local financial legal environments and reducing transaction costs for market participants. By investigating the causal relationship between judicial reforms and financial development, our findings provide new insights into the "law and finance" theory and offer policy implications for addressing financial development gaps and promoting financial inclusion in emerging markets.

The COVID-19 pandemic, digitalization level, and financing constraints of listed tourism companies

This paper empirically examines the impact of digital transformation on the financing constraints of tourism-related listed companies in the Chinese capital market during the COVID-19 pandemic. The empirical results indicate that digital transformation significantly reduces financing constraints during the pandemic. Heterogeneity analysis shows that the mitigating effect of digital transformation on financing constraints during the pandemic is mainly evident in large-scale enterprises and those with a higher proportion of institutional investors.

The Effect of Green Innovation Strategies on Firm Internal Operations: Evidence from Human Capital Structure Adjustment

Although prior studies have broadly examined the external economic consequences of corporate green innovation (GI) strategies, whether and how GI strategies influence firms’ internal operations is underexplored. To fill this significant gap, we investigate the effect of GI initiatives on firm human capital structure, as represented by the ratio of salesmen (RSE) and accountants (RAE) to total employees. A higher RSE (RAE) plausibly indicates an enhanced position of salesmen (accountants) in human capital and greater importance that firms attach to their crucial role in improving marketing (reporting). Consistent with GI enhancing consumer purchase willingness, we find that GI lowers RSE. In line with GI reducing financing constraints and firms’ emphasis on high-quality financial reporting, we record that GI decreases RAE. Moreover, such inhibitory effects become stronger when stakeholders’ recognition of GI strategies grows, or when firms ex-ante rely more on marketing (reporting) functions of salesmen (accountants).

The inverted U-shaped relationship between corporate social responsibility and default risk: The role of financing constraints

With increased corporate liquidity and debt repayment pressure, CSR's “insurance” role has received more attention. We conducted a comprehensive empirical analysis of 4988 listed companies in the Chinese context during 2011–2020. Our research has three findings: First, the initial increase in CSR will lead to a rise in default risk. However, once the CSR level exceeds a specific threshold, the default risk decreases as the CSR rises. We tested the robustness of the results by replacing the explanatory and the explained variables and taking into account the lag time effect, which proved the reliability of our research conclusions. Second, the mediation analysis shows financing constraints play an important mediating role in this inverted U-shaped relationship. On the left side of the U-shape, CSR performance intensifies financing constraints, while on the right side, increasing CSR reduces financing constraints. Finally, we confirm heterogeneity in the impact of CSR on the default risk of different enterprises' ownership and size. Our study complements the current literature on the effects of CSR on default risk. We are making policymakers and stakeholders aware of the importance of mandatory CSR disclosure.

How does digital finance affect the total factor productivity of listed manufacturing companies?

The development of digital finance offers numerous development opportunities, particularly in the accessing of funds for enterprises that traditionally face financial constraints. The economic downturn globally and especially in China requires new policies for stimulating economic growth. The manufacturing industry in particular is apt for this kind of intervention. Although studies have examined these topics, several gaps exist in the literature, specifically in the area of the effect mechanism. Therefore, this study examines the direct relationship between digital finance and the total factor productivity (TFP) of manufacturing enterprises and discusses the mechanism of action between the two from the intermediary and entry/exit perspectives. The findings show that digital finance affects manufacturing TFP positively and significantly. The promotion effect of digital finance is more evident from the enterprise heterogeneity analysis, particularly for small- and medium-sized private and manufacturing enterprises with better growth. The effect mechanism analysis shows that digital finance affects manufacturing TFP positively by reducing financing constraints, improving the level of human capital, and enhancing enterprise risk-taking ability. From the perspective of enterprise entry and exit, the entry of high-productivity enterprises enhances market competition and is an important way that digital finance promotes the improvement of industry TFP.

Political connections and corporate ESG performance

With the popularization of the concept of sustainable development, corporate ESG performance has attracted more and more attention from all walks of life. However, there is still a lack of in-depth discussion on what factors affect corporate ESG performance, especially in a political and economic system like China. This article takes A-share listed companies as a sample to empirically analyze the impact of political connections on corporate ESG performance. The study found that political connections can promote corporate ESG performance by increasing media attention and reducing financing constraints. Further research found that this promotion performance is more significant in non-state-owned enterprises. This article combines the national conditions with Chinese characteristics, enriches the research on the factors that promote corporate ESG performance from the government perspective, and deepens the research on the role and consequences of political connections.

ESG rating results and corporate total factor productivity

As a measure of corporate environmental, social, and governance (ESG) performance, ESG ratings have increasingly gained attention from corporations, the public, and government agencies, gradually becoming a key factor influencing their perceptions and decision-making regarding corporations. This study explores the impact of corporate ESG ratings on Total Factor Productivity (TFP) and its underlying mechanisms. Using listed companies in China as the research sample, it was found that higher ESG ratings significantly enhance corporate TFP, a conclusion that holds even after conducting robustness checks and addressing endogeneity issues. Further analysis indicates that high ESG ratings improve corporate TFP by reducing financing constraints and increasing government subsidies. Heterogeneity analysis shows that the effect of ESG ratings on enhancing TFP is more pronounced for corporations with high levels of attention, good reputations, and high audit quality. Additionally, the study also examines whether ESG ratings can serve as an effective predictor of corporate TFP. By applying machine learning algorithms for validation, the results show that incorporating ESG ratings significantly improves the accuracy of predictions for corporate TFP.