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Can designed financial systems drive out highly polluting firms? An evaluation of an experimental economic policy

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  • Zhang, Dongyang
  • Du, Pengcheng
  • Chen, Yaowen

Abstract

This paper discusses the causal effects of designed financial systems on the viability of firms, surveying both heavily and lightly polluting firms by investigating their financial mechanisms. Using a large panel of Chinese manufacturing firms, we overcome endogenous issues with DIDID and yield several findings. First, a designed financial system measured by China's 11th Five-Year Plan increases the exit rate of highly polluting firms. Second, heavily polluting firms left markets as a result of reducing investment and suffering from growing financing costs. Third, firms’ profitability, investment and production cost significantly affect the exit rate of firms.

Suggested Citation

  • Zhang, Dongyang & Du, Pengcheng & Chen, Yaowen, 2019. "Can designed financial systems drive out highly polluting firms? An evaluation of an experimental economic policy," Finance Research Letters, Elsevier, vol. 31(C).
    • Handle: RePEc:eee:finlet:v:31:y:2019:i:c:s1544612319306877
    DOI: 10.1016/j.frl.2019.08.032
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