Does green credit policy impact corporate cash holdings?

This paper investigates the impact of green credit policy on the cash holdings of high-polluting firms based on the enforcement of China's "Green Credit Guidelines". We find a significant positive effect of green credit policy on corporate cash holdings. The results are consistent after a series of robust tests and excluding the confounding events. The positive effect is more pronounced for private firms, firms with high industry competition and firms with high operating leverage. What's more, we find the potential mechanism for the positive relationship, reducing the bank loans and liabilities, which exacerbates the external financing environment. Finally, we document that the policy effect decreases the high-polluting firms' risk-taking. Our study sheds light on the challenges brought by the green credit policy on the high-polluting firms, expanding the prior literature.