IDEAS home Printed from https://ideas.repec.org/a/gam/jsusta/v17y2025i4p1648-d1592640.html
   My bibliography  Save this article

The Impact of Green Finance Policies on Corporate Debt Default Risk—Evidence from China

Author

Listed:
  • Li Fan

    (Law School, Jilin University, Changchun 130012, China)

  • Weidong Xu

    (Law School, Jilin University, Changchun 130012, China)

Abstract

As global climate change issues have become increasingly severe, green finance has gained widespread attention from governments and financial institutions as a crucial tool for promoting sustainable development. This paper explores the impact of green finance reform pilot zones on corporate debt default risks based on a difference-in-differences model. We found that green finance policies significantly increase corporate debt default risks by exacerbating financing constraints and reducing stock liquidity. A heterogeneity analysis revealed that polluting enterprises, non-state-owned enterprises, and companies in the Eastern region are more susceptible to the impacts of this policy. This paper suggests that the government should formulate differentiated green finance policies tailored to different types of enterprises and regional characteristics.

Suggested Citation

  • Li Fan & Weidong Xu, 2025. "The Impact of Green Finance Policies on Corporate Debt Default Risk—Evidence from China," Sustainability, MDPI, vol. 17(4), pages 1-20, February.
  • Handle: RePEc:gam:jsusta:v:17:y:2025:i:4:p:1648-:d:1592640
    as

    Download full text from publisher

    File URL: https://www.mdpi.com/2071-1050/17/4/1648/pdf
    Download Restriction: no

    File URL: https://www.mdpi.com/2071-1050/17/4/1648/
    Download Restriction: no
    ---><---

    References listed on IDEAS

    as
    1. Hossain, Mohammad Razib & Rao, Amar & Sharma, Gagan Deep & Dev, Dhairya & Kharbanda, Aeshna, 2024. "Empowering energy transition: Green innovation, digital finance, and the path to sustainable prosperity through green finance initiatives," Energy Economics, Elsevier, vol. 136(C).
    2. Nickell, Stephen & Nicolitsas, Daphne, 1999. "How does financial pressure affect firms?," European Economic Review, Elsevier, vol. 43(8), pages 1435-1456, August.
    3. Foxon, T. J. & Gross, R. & Chase, A. & Howes, J. & Arnall, A. & Anderson, D., 2005. "UK innovation systems for new and renewable energy technologies: drivers, barriers and systems failures," Energy Policy, Elsevier, vol. 33(16), pages 2123-2137, November.
    4. Nepal, Rabindra & Liu, Yang & Wang, Jianda & Dong, Kangyin, 2024. "How does green finance promote renewable energy technology innovation? A quasi-natural experiment perspective," Energy Economics, Elsevier, vol. 134(C).
    5. Whited, Toni M, 1992. "Debt, Liquidity Constraints, and Corporate Investment: Evidence from Panel Data," Journal of Finance, American Finance Association, vol. 47(4), pages 1425-1460, September.
    6. Cui, Lianbiao & Huang, Yuran, 2018. "Exploring the Schemes for Green Climate Fund Financing: International Lessons," World Development, Elsevier, vol. 101(C), pages 173-187.
    7. Yang Lyu & Zheng Ji & Xiaoqi Zhang & Zhe Zhan, 2023. "Can Fintech Alleviate the Financing Constraints of Enterprises?—Evidence from the Chinese Securities Market," Sustainability, MDPI, vol. 15(5), pages 1-21, February.
    8. Muhammad K Anser & Muhammad Usman & Danish I Godil & Malik S Shabbir & Mosab Ismail Tabash & Munir Ahmad & Aysha Zamir & Lydia B Lopez, 2022. "Does air pollution affect clean production of sustainable environmental agenda through low carbon energy financing? evidence from ASEAN countries," Energy & Environment, , vol. 33(3), pages 472-486, May.
    9. He, Feng & Feng, Yaqian & Hao, Jing, 2023. "Corporate ESG rating and stock market liquidity: Evidence from China," Economic Modelling, Elsevier, vol. 129(C).
    10. Guangsheng Liu & Lesong Zhao & Huiying Chen & Yuting Zhou & Hanbing Lin & Cunyue Wang & Haojuan Huang & Xiting Li & Zhongyou Yuan, 2022. "Does Farmland Transfer Lead to Non-Grain Production in Agriculture?—An Empirical Analysis Based on the Differentiation of Farmland Renting-In Objects," Sustainability, MDPI, vol. 15(1), pages 1-17, December.
    11. Weber, Manuela, 2008. "The business case for corporate social responsibility: A company-level measurement approach for CSR," European Management Journal, Elsevier, vol. 26(4), pages 247-261, August.
    12. Blyth, William & Bradley, Richard & Bunn, Derek & Clarke, Charlie & Wilson, Tom & Yang, Ming, 2007. "Investment risks under uncertain climate change policy," Energy Policy, Elsevier, vol. 35(11), pages 5766-5773, November.
    13. Wang, Kai-Hua & Zhao, Yan-Xin & Jiang, Cui-Feng & Li, Zheng-Zheng, 2022. "Does green finance inspire sustainable development? Evidence from a global perspective," Economic Analysis and Policy, Elsevier, vol. 75(C), pages 412-426.
    14. Renneboog, Luc & Ter Horst, Jenke & Zhang, Chendi, 2008. "Socially responsible investments: Institutional aspects, performance, and investor behavior," Journal of Banking & Finance, Elsevier, vol. 32(9), pages 1723-1742, September.
    Full references (including those not matched with items on IDEAS)

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Duygan-Bump, Burcu & Levkov, Alexey & Montoriol-Garriga, Judit, 2015. "Financing constraints and unemployment: Evidence from the Great Recession," Journal of Monetary Economics, Elsevier, vol. 75(C), pages 89-105.
    2. Rui Coelho & Shital Jayantilal & Joao J. Ferreira, 2023. "The impact of social responsibility on corporate financial performance: A systematic literature review," Corporate Social Responsibility and Environmental Management, John Wiley & Sons, vol. 30(4), pages 1535-1560, July.
    3. R. Glenn Hubbard, 1998. "Capital-Market Imperfections and Investment," Journal of Economic Literature, American Economic Association, vol. 36(1), pages 193-225, March.
    4. Sena, Vania, 2006. "The determinants of firms' performance: Can finance constraints improve technical efficiency?," European Journal of Operational Research, Elsevier, vol. 172(1), pages 311-325, July.
    5. Gross, Robert & Blyth, William & Heptonstall, Philip, 2010. "Risks, revenues and investment in electricity generation: Why policy needs to look beyond costs," Energy Economics, Elsevier, vol. 32(4), pages 796-804, July.
    6. Carpenter, Robert E. & Guariglia, Alessandra, 2008. "Cash flow, investment, and investment opportunities: New tests using UK panel data," Journal of Banking & Finance, Elsevier, vol. 32(9), pages 1894-1906, September.
    7. Ferrando, Annalisa & Martinez-Carrascal, Carmen & Coluzzi, Chiara, 2009. "Financing obstacles and growth: an analysis for euro area non-financial corporations," Working Paper Series 997, European Central Bank.
    8. Molinari, Massimo, 2013. "Joint analysis of the non-linear debt–growth nexus and cash-flow sensitivity: New evidence from Italy," Structural Change and Economic Dynamics, Elsevier, vol. 24(C), pages 34-44.
    9. Kotaro Tsuru, 2000. "Finance and Growth: Some Theoretical Considerations and a Review of the Empirical Literature," OECD Economics Department Working Papers 228, OECD Publishing.
    10. Jin, Man & Zhao, Shunan & Kumbhakar, Subal C., 2019. "Financial constraints and firm productivity: Evidence from Chinese manufacturing," European Journal of Operational Research, Elsevier, vol. 275(3), pages 1139-1156.
    11. Vlieghe, Gertjan & Stephen Bond & Alexander Klemm & Rain Newton-Smith & Murtaza Syed, 2003. "The roles of expected profitability, Tobin's Q and cash flow in econometric models of company investment," Royal Economic Society Annual Conference 2003 212, Royal Economic Society.
    12. Guariglia, Alessandra, 2008. "Internal financial constraints, external financial constraints, and investment choice: Evidence from a panel of UK firms," Journal of Banking & Finance, Elsevier, vol. 32(9), pages 1795-1809, September.
    13. Fátima Herranz González & Carmen Martínez-Carrascal, 2017. "The impact of firms’ financial position on fixed investment and employment. An analysis for Spain," Working Papers 1714, Banco de España.
    14. Coad, Alex, 2010. "Neoclassical vs evolutionary theories of financial constraints: Critique and prospectus," Structural Change and Economic Dynamics, Elsevier, vol. 21(3), pages 206-218, August.
    15. Carlo Altomonte & Tommaso Aquilante & Gianmarco Ottaviano, . "The triggers of competitiveness- The EFIGE cross-country report," Bruegel Blueprints, Bruegel, number 738.
    16. Alexander Golub & Jon Anda & Anil Markandya & Michael Brody & Aldin Celovic & Angele Kedaitiene, 2022. "Climate alpha and the global capital market," Working Papers 2022.19, Fondazione Eni Enrico Mattei.
    17. Carmen Martínez-Carrascal & Annalisa Ferrando, 2008. "The impact of financial position on investment: an analysis for non-financial corporations in the euro area," Working Papers 0820, Banco de España.
    18. Gerlach, Petra & O'Connell, Brian & O'Toole, Conor, 2013. "SME Credit Constraints and Macroeconomic Effects," Papers WP467, Economic and Social Research Institute (ESRI).
    19. Ornella Wanda Maietta & Vania Sena, 2010. "Financial Constraints And Technical Efficiency: Some Empirical Evidence For Italian Producers' Cooperatives," Annals of Public and Cooperative Economics, Wiley Blackwell, vol. 81(1), pages 21-38, March.
    20. Fernando Gómez-Bezares & Wojciech Przychodzen & Justyna Przychodzen, 2016. "Corporate Sustainability and Shareholder Wealth—Evidence from British Companies and Lessons from the Crisis," Sustainability, MDPI, vol. 8(3), pages 1-22, March.

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:gam:jsusta:v:17:y:2025:i:4:p:1648-:d:1592640. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: MDPI Indexing Manager (email available below). General contact details of provider: https://www.mdpi.com .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.