Are banks really special? Evidence from a natural experiment

Justin Hung Nguyen and Jing Shi

Journal of International Financial Markets, Institutions and Money, 2021, vol. 72, issue C

Abstract: Australia’s Kyoto Protocol ratification (KPR) in December 2007 mandates the country to reduce greenhouse gas (GHG) emissions, hence affecting firms in the highest emitting industries. We exploit the KPR as an exogenous increase in environmental risk facing the highest GHG emitters. We find that the stock market reactions to bank loan announcements significantly increase after the KPR for these emitters relative to non-emitters. The effect is stronger for borrowers with higher information asymmetry and financial constraints. The evidence suggests that banks can certify their borrowers’ environmental risk through their loan approvals, which confirms the certification role of banks.

Keywords: Bank loan announcement; Abnormal return; Environmental risk (search for similar items in EconPapers)
JEL-codes: G14 G21 G32 Q51 (search for similar items in EconPapers)
Date: 2021
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (5)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:intfin:v:72:y:2021:i:c:s104244312100055x

DOI: 10.1016/j.intfin.2021.101336

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