Conference Agenda

This study investigates how tightened green financial regulation affects corporate environmental performance. In a simple theoretical framework, we reveal that tightened green financial regulation enhances corporate environmental responsibility, and motivates polluting firms to strengthen environmental responsibility as a strategy to ease financing constraints. Using panel data on Chinese listed firms from 2007 to 2020, we find that tightened green financial regulation significantly improves corporate environmental responsibility. Our analysis further shows that firms with greater human and fixed capital, as well as those located in cities with higher administrative rankings, respond more strongly to tightened green financial regulation. This heightened responsiveness is primarily driven by firms’ need to ease financing constraints imposed by green finance regulations, mainly through adjustments in primary financing channels. We also find that political connections weaken the policy’s effectiveness, with executives’ public office experience exerting a stronger influence than local government protection. Moreover, tightened green financial regulation improves environmental performance but reduce economic performance, thereby failing to deliver an environmental-economic win-win outcome. Using the Guideline on Green Credit as a case study, our cost-benefit analysis shows that the policy’s benefits are roughly eleven times its costs. This study offers theoretical insights for China’s high-quality economic development and practical implications for both policymakers and firms undertaking green transitions.