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| China's Green Finance Policy, Financing Costs and Firms' Green Transition: A Central Bank Collateral Framework Perspective |
| CHEN Guojin, DING Saijie, ZHAO Xiangqin, JIANG Xiaoyu
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School of Economics/Wang Yanan Institute for Studies in Economics, Xiamen University;
Research Institute,the People's Bank of China |
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Abstract In recent years, China has introduced successive green finance policies, intensifying policy support for the green transition of the economy. The effectiveness of these policies and how they promote the green transition of the economy has attracted a great deal of attention.
In this paper, we integrate the green finance policy and green transition into the sustainable investment asset pricing model and analyze the effects of green finance policy on the expected returns of risky assets and firms' green innovation. Next, using the quasi-natural experiment of the central bank including green bonds as qualified collateral, we provide empirical evidence of the effects of green finance policy from the perspectives of financing costs and corporate green innovation. We also conduct various robustness tests, such as changing the sample interval, a placebo test, policy delay effect, and propensity score matching to address potential endogeneity in our empirical investigation.
This study's main findings are as follows. (1) The central collateral framework policy reduces the credit spreads of green bonds and increases the credit spreads of brown bonds, demonstrating that the green finance policy creates financing incentives for green firms and pressures for the green transition of brown firms, respectively. (2) These effects are stronger in the green finance reform and innovation pilot zone but gradually weaken over time. (3) The central collateral framework policy significantly enhances the green innovation of brown firms through financial pressure that forces them to engase in green transition.
According to these findings, we propose three policy implications for the central bank to better promote the green transition of the economy. (1) The central bank should continue to provide financial support for green firms through the expansion of collateral. Specifically, expanding the green assets those qualify as collateral or increasing the mortgage rate of green assets can further strengthen the policy effects. (2) The central bank should implement the continuous and progressive green finance policy and further expand the green finance reform and innovation pilot zone to promote green transition. (3) The central bank should provide financing incentives for brown firms that actively engage in green innovation.
This paper makes the following contributions to the literature. (1) With the introduction of green finance policy and firm's green transition decision, we extend the sustainable investment (ESG) asset pricing model of Pástor et al. (2021). ESG asset pricing models rarely consider the impact of financial policy, especially green finance policy, on asset prices. Using the extended ESG asset pricing model, this paper provides a unified theoretical framework for green finance policy, firms' financing costs and firms' green transition. (2) To address potential concerns about model uncertainty caused by a single empirical methodology, we use a combination of difference-in-difference (DID), triple differences (DDD) and continuous DID methods to identify the causality between green finance policy, bond credit spreads and firms' green transitions, resolving the endogeneity problem. (3) This paper provides evidences of the green effects of green finance policy from the perspectives of credit spreads and firms' green innovation. We comprehensively test the heterogeneous effects of the policy on bond credit spreads and the dynamic time-varying and regional differences in the policy effects. We verify the mechanisms that force brown firms to engase in green transition.
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Received: 28 June 2021
Published: 01 January 2022
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