Environmental Penalties and Financing Punishment: Evidence from Incremental Bank Loans

ABSTRACT

This study examines the impact of environmental penalties on corporate incremental bank loans. The results show that both the frequency and degree of environmental penalties significantly reduce corporate incremental bank loans, indicating that corporate environmental penalties lead to “financing punishment” by damaging corporate reputation and increasing risks. This financing punishment can be alleviated by good CSR performance and CSR assurance, indicating that exemplary CSR performance and assurance can provide an “insurance” effect to influence bank loans when a firm has a negative event. We also find that this financing punishment has intra-industry peer effects, suggesting that the environmental penalties incurred by one firm can influence the broader credit decisions of commercial banks within the same industry.

KEYWORDS:

• Environmental penalty frequency
• environmental penalty degree
• financing punishment
• incremental bank loans

JEL:

• Q56
• G21
• G32

Acknowledgments

Xiaoyan Chen thanks the support of the R&D Program of Beijing Municipal Education Commission (SM202410009002), the R&D Program of Beijing Municipal Education Commission (SM202210009005), and the Humanities and Social Science Research Projects of Beijing Technology and Business University (KYPT202304). Xiaobei Huang thanks the support of National Natural Science Foundation of China (71602004), and the Social Science Foundation of Beijing (19GLC059). All errors are our own.

Disclosure Statement

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

Supplementary material

Supplemental data for this article can be accessed online at https://doi.org/10.1080/1540496X.2024.2377994

Notes

1. According to the Guidelines for Environmental Information Disclosure of Listed Firms Published by the Chinese Ministry of Environmental Protection, the heavy polluting industrial codes include B06, B07, B08, B09, C17, C19, C22, C25, C26, C27, C28, C30, C31, C32, C33, D44. http://www.csrc.gov.cn/csrc/c100103/c1452025/content.shtml; https://www.mee.gov.cn/gkml/hbb/bgth/200910/t20091022_174891.htm.

2. Please find the scoring standards for corporate environmental violations on the website http://m.tanpaifang.com/article/62823.html;https://www.thepaper.cn/newsDetail_forward_5017886;http://www.changbaishan.gov.cn/zwdt/zfgg/201801/t20180119_106289.html;http://www.doc88.com/p-7758437872127.html.

Additional information

Funding

This work was supported by the National Natural Science Foundation of China [71602004]; the Humanities and Social Science Research Projects of Beijing Technology and Business University [KYPT202304]; R&D Program of Beijing Municipal Education Commission [SM202210009005]; the Social Science Foundation of Beijing [19GLC059].