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Financial mechanism for sustainability: the case of China’s green financial system and corporate green investment

Author

Listed:
  • Fahad Khalid

    (Guilin University of Electronic Technology)

  • Chih-Yi Su

    (Guilin University of Electronic Technology)

  • Kong Weiwei

    (Guilin University of Electronic Technology)

  • Cosmina Voinea

    (Open University of the Netherlands [Heerlen])

  • Mohit Srivastava

    (Métis Lab EM Normandie - EM Normandie - École de Management de Normandie = EM Normandie Business School)

Abstract

Purpose This study empirically evaluates the effect of China's 2016 Green Financial System (GFS) framework on corporate green development, focusing on the role of green investment in achieving sustainability. Design/methodology/approach This study uses a quasinatural experiment design to combine difference-in-difference and propensity score matching methods for analysis. It examines 799 polluting and 1,130 nonpolluting firms from 2013 to 2020, enabling a comprehensive assessment of the GFS framework's influence. Findings This study affirms a statistically significant positive influence of the GFS framework on escalating green investment levels in polluting firms. Robust sensitivity analyses, encompassing parallel trend assessment, entropy balancing test, and alternative proxies, corroborate these findings. A mediation analysis identifies the implementation of an environmental management system as the potential underlying mechanism. A cross-sectional analysis identifies high financial slack, high profitability, mandatory CSR regulations, and marketization level as the influencing factors. Research limitations/implications The study's findings have critical implications for policymakers, regulators, and companies. Demonstrating the effectiveness of the GFS framework in driving green investment underscores the importance of aligning financial systems with sustainability goals. Originality/value This study contributes novel empirical evidence on the positive effect of China's GFS framework on corporate green development. The quasinatural experiment design, coupled with comprehensive sensitivity analyses, strengthens the robustness of the findings.

Suggested Citation

  • Fahad Khalid & Chih-Yi Su & Kong Weiwei & Cosmina Voinea & Mohit Srivastava, 2024. "Financial mechanism for sustainability: the case of China’s green financial system and corporate green investment," Post-Print hal-04974440, HAL.
    • Handle: RePEc:hal:journl:hal-04974440
    DOI: 10.1108/CFRI-11-2023-0291
    as

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