Does environmental credit affect bank loans? Evidence from Chinese A-share listed firms

We investigate the effect of government-initiated enterprise environmental credit ratings on firms' bank loans. While prior research indicates that companies with superior environmental performance tend to secure more bank loans, it is crucial to acknowledge that these performance metrics predominantly rely on voluntary corporate social responsibility or environmental, social, and governance disclosures made by the firms themselves or evaluated by third-party agencies. Consequently, the evaluation results could be biased due to incomplete information disclosure, methodologies, or systems, raising concerns among scholars about potential "greenwashing" or symbolic environmental actions. In contrast, we employ a dataset comprising 27,388 observations from 2009 to 2021, applying propensity score matching and a time-varying difference-in-difference model to better discern the relationship between firms' environmental credit ratings and their ability to obtain bank loans. Our findings highlight that firms participating in environmental credit evaluation can secure more bank loans compared to non-participating firms. This effect is especially pronounced in regions with advanced green finance development. Further analysis shows that non-state-owned enterprises with excellent or good environmental credit ratings receive more loans, thus mitigating ownership bias in loan distribution. Overall, our results demonstrate that mandatory government environmental credit ratings mitigate information asymmetry by enabling lenders to better understand firms' environmental information.