Banking competition and the effectiveness of environmental regulations: Evidence from China

Deming Luo, Junhao Kong, Xu Wei and Mohan Zhou

International Review of Economics & Finance, 2024, vol. 91, issue C, 579-596

Abstract: We find that the effectiveness of environmental regulations is contingent on local banking competition in China. Specifically, firms located in cities with more concentrated banking markets are less likely to reduce their SO2 emissions or increase investment in abatement equipment when faced with regulation tightening. Instead, these firms switch to cleaner coal, which is more costly in reducing pollution but requires less upfront investment. These results suggest that firms in cities with limited banking competition face difficulties accessing the credit necessary for effective pollution abatement. A competitive local banking sector is thus a necessary complement to environmental regulation efforts in China.

Keywords: Banking competition; Environmental regulation; Air pollution; China (search for similar items in EconPapers)
JEL-codes: G21 Q5 (search for similar items in EconPapers)
Date: 2024
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Persistent link: https://EconPapers.repec.org/RePEc:eee:reveco:v:91:y:2024:i:c:p:579-596

DOI: 10.1016/j.iref.2024.01.053

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