Air Pollution and Corporate Green Financial Constraints: Evidence from China's Listed Companies

This paper aims to investigate how air pollution may affect corporate green financial constraints. We assume that poor air quality can enhance the pressure of governments on environmental protection, which creates easier access to financing for firms' green investments and transitions, especially in emerging markets. Using a sample of Chinese-listed companies, we find that the level of green financial constraints is reduced when air quality deteriorates. This effect is more obvious in regions with stronger local government influence or fewer formal environmental regulations. To manage potential self-selection and endogeneity issues, fixed effects (FE), two-stage least squares (2SLS) with instrumental variables (IV), and propensity-score matching (PSM) approaches are used to verify the validity of our results. We link air pollution and financial constraints of green investment, and we fill a literature gap by considering whether the environment can have an impact on corporate green transformation. In the channel analysis, we identify that debt could be an important mechanism through which firms derive fewer green financial constraints. Our findings indicate that air pollution can be a crucial factor restricting corporate green investment and transformation, and managers in the context of emerging markets should be more attentive to green financing.