Can Green Credit Policy Promote Firms' Green Innovation? Evidence from China

To achieve the twin goals of "stable growth" and "environmental protection", it is necessary to promote green innovation in firms and green transformation of the economy. This paper regards China's Green Credit Guidelines policy in 2012 as a quasi-natural experiment to explore the impact of the policy on the green innovation of heavy-polluting firms. This analysis uses Chinese A-share listed industrial enterprises from 2008-2019 as the research sample and difference-in-difference (DID) as the empirical method. The results show that implementing the green credit policy has significantly contributed to firms' green technology innovation enhancement. Moreover, the mechanism suggests that the green credit policy can promote firms' green innovation through channels, such as inhibiting the compression of heavy-polluting firms' financing space, increasing their debt financing costs, and promoting firm transformation and upgrading. Further study finds that the green credit policy promotes green innovation significantly for state-owned and large firms but not for non-state-owned and small-scale firms. Based on our empirical results, we can conclude that the green credit policy is an efficient way to realize the goal of "environmental excellence" and guide firms to effectively carry out green innovation.