Long-term credit and green innovation : causal evidence from China

ABSTRACT

Environmental issues are a global challenge. In bank-centric financial systems such as China’s, the impact of long-term credit on sustainable development is a crucial yet underexplored issue. We use a plausibly exogenous long-term credit policy (LCP) implemented in 2019 to identify the impact of long-term credit on green innovations. Using a difference-in-differences (DID) approach, we find that long-term credit increases firms’ low-quality green innovations by optimizing credit term structures and generates spillover effects on environmental performance. Moreover, long-term credit significantly enhances high-quality green innovation in regions with more stringent environmental disclosure regulations. These findings reveal a quantity-over-quality effect of long-term credit on green innovation and highlight the critical role of integrating financial and environmental policies.

KEYWORDS:

• Long-term credit
• green innovation
• innovation quality
• environmental performance
• environmental regulations

JEL CLASSIFICATION:

• G32
• Q56

Disclosure statement

No potential conflict of interest was reported by the author(s).

Data availability statement

The data that support the findings of this study are openly available: doi:10.7910/DVN/P8ETC8.

Notes

¹ Data are from People’s Bank of China.