Air Pollution and Corporate Green Financial Constraints: Evidence from China’s Listed Companies

Abstract

This paper aims to investigate how air pollution may affect corporate green financial constraints. We assume that poor air quality can enhance the pressure of governments on environmental protection, which creates easier access to financing for firms’ green investments and transitions, especially in emerging markets. Using a sample of Chinese-listed companies, we find that the level of green financial constraints is reduced when air quality deteriorates. This effect is more obvious in regions with stronger local government influence or fewer formal environmental regulations. To manage potential self-selection and endogeneity issues, fixed effects (FE), two-stage least squares (2SLS) with instrumental variables (IV), and propensity-score matching (PSM) approaches are used to verify the validity of our results. We link air pollution and financial constraints of green investment, and we fill a literature gap by considering whether the environment can have an impact on corporate green transformation. In the channel analysis, we identify that debt could be an important mechanism through which firms derive fewer green financial constraints. Our findings indicate that air pollution can be a crucial factor restricting corporate green investment and transformation, and managers in the context of emerging markets should be more attentive to green financing.

Impact of Urban Air Quality on Total Factor Productivity: Empirical Insights from Chinese Listed Companies

“…Zhang et al [35] observed that air pollution aggravates firms' information environment and financial constraints due to information asymmetry, resulting in significant underpricing during initial public offerings (IPOs). On the other hand, considering green finance and governmental intervention in environmental preservation, Shen et al [36] presented a contrasting perspective. They argued that acute air pollution exerts considerable environmental pressure on governments, prompting them to ease green financing thresholds for companies via green credit policies, thus aiding their ecological transition.…”

“…(1) The government must focus on enhancing pollution control and treatment frameworks, solidifying the execution of the central environmental protection inspection mechanism, and continually improving industrial incentive schemes to cultivate an optimal environment for superior corporate growth. Given the local governments' augmented authority in China's political structure, which has inadvertently weakened the enforcement prowess of environmental agencies due to the territorial management approach [36], it is imperative to bolster the vertical management system of these bodies and the centralized inspection regime, thereby laying a strong legal groundwork for environmental stewardship. The government is also encouraged to optimize energy usage, advocate for efficient fossil fuel use, and support the advancement of clean, renewable energy sources.…”

Corporate sustainability disclosure on social media and its difference from sustainability reports:Evidence from the energy sector

“…Under the influence of global sustainability agreements, such as the Kyoto Protocol, the energy industry faces increasing pressure on sustainable development (Chodnicka-Jaworska, 2022;Deng, et al, 2022;Shen, et al, 2022;Wanday and Ajour El Zein, 2022). Especially in recent China, with the introduction of national policies including "carbon peaking and carbon neutrality" (Ju, et al, 2022), Chinese energy firms face severe sustainability challenges.…”