When green finance meets banking competition: Evidence from hard-to-abate enterprises of China

Bo Zhou and Cheng Zhang

Pacific-Basin Finance Journal, 2023, vol. 78, issue C

Abstract: Theoretically, banking competition improves the allocation of financial resources, thus increasing the effectiveness of green finance. In this paper, this argument is empirically investigated in the Chinese context. A unique data set containing the banks' geographical location around enterprises is used to measure banking competition, and the mixed impacts of green finance and banking competition on hard-to-abate enterprises are regressed. The results show that banking competition significantly enabled green finance to decrease firm financial performance. The results remained robust after a number of tests and results, and were found to be more apparent among smaller-sized and less financially constrained enterprises. Analysis of the underlying mechanism suggests a significant role of decreasing bank credit and increasing interest payable. Notably, banking competition also significantly assisted green finance's effect on promoting firm-level green innovation. These findings highlight the exploitable role of banking competition for effective green finance, especially in emerging market countries with developing banking systems.

Keywords: Green finance; Banking competition; Bank-firm distance; Firm financial performance; Green innovation (search for similar items in EconPapers)
Date: 2023
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Citations: View citations in EconPapers (7)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:pacfin:v:78:y:2023:i:c:s0927538x23000203

DOI: 10.1016/j.pacfin.2023.101954

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