Bank deregulation and corporate environmental performance

Abstract

In this study, we provide one of the first pieces of evidence about how bank deregulation affects corporate environmental performance. We use a unique dataset that contains rich information on firms’ toxic emissions and exploit the bank branching deregulation policy in China. We find that bank deregulation significantly improves firms’ environmental performance, as measured by lower emission intensity of chemical oxygen demand (COD). We further demonstrate that these firms’ production efficiency increases and the ratio of tangible assets to total assets decreases, which suggests that upgrading technology and asset mix are the main channels. To improve the efficiency of the banking system, many developing countries are undergoing or moving toward bank deregulation. By focusing on corporate environmental performance, we document an important but unanticipated result of bank deregulation, and the results also provide policy implications for the burgeoning reform in green finance.