https://orcid.org/0000-0002-2142-7607
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Abstract
We study the impact of social capital, measured by corporate social responsibility (CSR) performance, on corporate borrowing. Using a sample of 120,204 bank loan applications of China's listed firms, we find that an increase in CSR performance increases the loan amounts of approved loans, although it does not alter the likelihood of loan approval. Using aggregate loans at the firm level, we show that CSR performance positively impacts firms' long-term borrowing from banks but does not affect their short-term borrowing. The economic magnitude of the positive effect is large at both the loan and firm levels. We attribute this positive relationship to reduced information asymmetry and improved risk mitigation. Surprisingly, we find that banks do not discipline their borrowers' CSR investments through the lending relationship. Specifically, when borrowers exhibit high CSR performance and borrow from banks with high CSR performance, further increases in CSR no longer correlate with larger loan amounts. Our findings suggest that China's state-led green credit policies should be more market-oriented.
Acknowledgments
We are grateful for helpful comments and suggestions from two anonymous referees, Xin Gu, Feng He (discussant), and the participants at the CoME-IBSS Annual Workshop jointly organized by Tianjin University and Xi'an Jiaotong-Liverpool University in 2023. All errors are our own.
Disclosure statement
No potential conflict of interest was reported by the author(s).
Notes
1 In 2021, the Chinese government announced its goals of achieving peak emissions before 2030 and carbon neutrality by 2060. See the World Bank Group's China Country Climate and Development Report, available at https://openknowledge.worldbank.org/handle/10986/38136.
2 China has implemented a series of related policies, including green tax and green procurement, as well as green credit policies relevant to the financial sector, namely, green credit, insurance, and security policies. Green credit policies are the most advanced of these policies, with three agencies (the Ministry of Environmental Protection, the Peoples' Bank of China, and the China Banking Regulatory Commission) sharing the responsibility for their implementation. The green credit policies were first issued in 2007, then revamped in 2012 as the ‘Green Credit Guidelines’ and in 2022 as the ‘Green Finance Guidelines for the Banking and Insurance Industry.’
3 China's green loans reached RMB 18 trillion (about USD 3 trillion) in March 2022 (about six times the amount of green bonds). The growth of green loans, at 14% in the first quarter of 2022, outpaced the growth of overall loans at 4.3%. However, green loans accounted for only about 10% of the total loan market, indicating large untapped potential for their expansion. The regulator claims that the green credit of the 21 major banks can save more than 400 million tons of standard coal and reduce carbon dioxide equivalents by more than 700 million tons each year; see https://greenfdc.org/interpretation-new-cbirc-green-finance-guidelines-for-the-banking-and-insurance-industry/.
4 Both CSR can ESG score can be used for measuring social responsibility (Lins, Servaes, and Tamayo Citation2017). It is unfortunate that ESG score from Bloomberg is available for less than 200 China's firms, which we take for a robustness check.
5 Our analysis focuses on loan pricing at the firm level because of data limitations.
6 In December 2008, the SHSE mandated that firms listed as belonging to its ‘Corporate Governance Sector’ (the 230 firms with the best governance practices at the time) issue a CSR report with their annual report beginning in the 2008 reporting year. Similarly, in December 2008, the SZSE mandated that listed firms on its ‘Shenzhen 100 Index’ issue a CSR report (top 100 listed firms ranked by total market capitalization).
7 Our results are robust to winsorizing all variables at the 5% and 95% levels.
8 The loans outstanding at the firm level from the balance sheet are more volatile than those from the aggregate loan sample. The lower bound for the loans outstanding at the firm level from the balance sheet is zero because a few listed firms do not have loans.
9 This loan-level data set from CSMAR is the only one that is publicly available in China. Private loan-level data are used in Cong et al. (Citation2019) and H. Gao, Ru, and Tang (Citation2021).
10 When we include firm fixed effects, Age is removed because of collinearity.
11 The results in the Appendix A.3 indicate that none of the three subcategories-Environment (E), Social (S), and Governance (G)-show a significant impact on loan approval. However, once a loan is approved, both the Governance and Social dimensions have a positive and significant influence on the loan amount. The Environmental dimension, while positive, does not show a significant impact. This leads to an overall positive relationship between CSR performance and loan amount.
12 To reduce computational demands, we apply bank and year fixed effects separately instead of joint bank-year fixed effects.
13 We observe a positive relationship between loan approval and loan amount in the simultaneous estimation, which contradicts our previous interpretation. The extent to which this affects our estimate remains unclear. However, the second and third approaches confirm that our single equation specification accurately estimates the impact of CSR performance on loan amount, once a loan is approved.
14 B. Cheng, Ioannou, and Serafeim (Citation2014) measure CSR performance by ESG performance scores obtained from Thomson Reuters ASSET4. They use a panel data set for 49 countries and show that superior CSR performance can reduce financial constraints and improve access to finance. However, their analysis set only includes 70 firms from China.
15 The aggregate sample contains 1,432 firm-year loan observations for 423 firms. After filtering out financial institutions, we have 844 firm-year loan observations.
16 In addition, we examine whether CSR performance increases firm borrowing in capital markets. The results are mixed. High-CSR firms can raise more funds in stock markets, but not in bond markets. However, if a bond is labeled green, bond issuance increases with CSR performance. We concentrate on borrowing from banks in the main text.
17 Our loan-level data exclude loan rates, which prevents us from conducting the pricing analysis at the loan level.
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Notes on contributors
Huajin Liu
Huajin Liu is a PhD student in College of Management and Economics at Tianjin University in Tianjin, China and her main research interests include corporate finance, investors' behavior, and green finance.
Youwei Li
Youwei Li is a Professor in the Hull University Business School in UK and his main research interests include asset pricing, financial econometrics, heterogeneous agent models of financial markets, and quantitative finance.
Yajun Xiao
Yajun Xiao is an Associate Profession in the International Business School Suzhou, Xi'an Jiatao Liverpool University in China. His research focuses on asset pricing and market friction, corporate financing and credit risk, as well as the interactions between the macro economy and banking.
Xiong Xiong
Xiong Xiong is a Professor in College of Management and Economics at Tianjin University and is a director of Laboratory of Computation and Analytics of Complex Management Systems (CACMS) in Tianjin, China and his main research interests include asset pricing, agent-based modeling, computational method, financial risk, and financial management.
Wei Zhang
Wei Zhang is a Chair Professor in College of Management and Economics at Tianjin University and is a director of Laboratory of Computation and Analytics of Complex Management Systems (CACMS) in Tianjin, China and his main research interests include financial engineering, financial big data analysis, and computational experimental finance.