The Effects of Green Credit Policy On The Formation of Zombie Firms: Evidence From Chinese Listed Firms

Abstract

This paper examines the effects of the green credit policy on forming three types of "zombie firms," namely, credit-subsidized zombie firms, poorly managed zombie firms, and comprehensive zombie firms, considering the quasi-natural experiment of the implementation of the "Green Credit Guidelines" in 2004. In this paper, I implement a difference-in-differences method and use the data of all Chinese A-share non-financial listed companies from 2008 to 2017. The results show that the green credit policy attempts to inhibit the formation of credit-subsidized zombie firms by reducing bank loan subsidies and evergreen lending. However, the green credit policy promotes poorly managed zombie firms by strengthening firms' financial constraints and reducing the working capital and investment efficiency. The green credit policy has not shown a significant impact on comprehensive zombie firms. Moreover, the green credit policy has shown a more significant impact on state-owned firms, firms in industries that heavily rely on external financing and are highly competitive, and firms involved in high financial marketization areas.