Actions Speak Louder than Words : Can a Reliable Green Signal Facilitate Bank Loan Financing? Evidence from China

Our study investigates whether a reliable signal of corporate commitment to green behaviors would influence corporate finance. Specifically, using the unique setting Green Manufacturing (GM) program in China, we examine whether and how green manufacturing certification (GMC) endorsed by government credit and supports could lead to an increase of firms’ bank loan financing. We find that GMC would increase bank loan financing, especially long-term bank loan financing, mainly through alleviation of banks’ concern of information risks and default risks arising from environmental risks. Heterogeneity analyses show that the positive effect of GMC on long-term bank loan financing is more pronounced for SOEs, firms in polluting industries and in less-eco-friendly regions. Our findings suggest that the government plays an important role in recognizing real corporate green behaviors, screening out greenwashing, and thus directing outsiders’ resource allocation decisions