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

Author

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  • Luo, Deming
  • Kong, Junhao
  • Wei, Xu
  • Zhou, Mohan

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.

Suggested Citation

  • Luo, Deming & Kong, Junhao & Wei, Xu & Zhou, Mohan, 2024. "Banking competition and the effectiveness of environmental regulations: Evidence from China," International Review of Economics & Finance, Elsevier, vol. 91(C), pages 579-596.
    • Handle: RePEc:eee:reveco:v:91:y:2024:i:c:p:579-596
    DOI: 10.1016/j.iref.2024.01.053
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    More about this item

    Keywords

    Banking competition; Environmental regulation; Air pollution; China;
    All these keywords.

    JEL classification:

    • G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Micro Finance Institutions; Mortgages
    • Q5 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Environmental Economics

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