Green credit policy and corporate diversification: evidence from China

This study draws insights from the New Stakeholder Theory to investigate the influence of green credit policy on firm diversification. Using a sample of publicly listed firms in China from 2006 to 2018, we find that green credit policy has increased the degree of corporate diversification for heavily polluting firms. In addition, the positive impact of green credit policy on industrial diversity is more significant for heavily polluting firms which are state-owned, bigger in size, with institutional ownership of shares and located in provinces with higher level of marketisation. Moreover, financial constraint is an important mediating variable for green credit policy to influence corporate diversification. An important implication of our study is that corporate diversification can be a strategic choice made by heavily polluting firms to overcome financial constraints as a result of the green credit policy. In fact, greater corporate diversity can ensure the survival of polluting firms by allowing them to operate in industries with less environmental regulations.