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Internal finance, financial constraint and pollution emissions: evidence from China

Author

Listed:
  • Thomas Pernet

    (Centre d'Economie de la Sorbonne, Université Paris 1 Panthéon-Sorbonne)

  • Mathilde Maurel

    (CNRS, Centre d'Economie de la Sorbonne)

  • Zhao Ruili

    (Shanga University of International Business and Economics, China)

Abstract
This study explores the role of internal finance on firms' environmental behavior, focusing specifically on sulfur dioxide (SO2) emissions in China's rapidly growing industrial sector. Using a rich and unique dataset provided by the Ministry of Environmental Protection (MEP), our baseline results find a statistically significant positive relationship between asset tangibility and SO2 emissions intensity, revealing that credit-constrained firms with higher tangible assets contribute to elevated pollution levels. Additionally, we observe that firms with stronger internal finances experience a significant reduction in SO2 emissions. Our empirical analysis uncovers two key mechanisms through which internal finance influences firm behavior. First, firms with stronger internal financial health, as measured by metrics like cash flow, current ratio, and coverage ratio, are more inclined to invest in Research & Development and Total Factor Productivity, especially in credit-constrained sectors. Second, these financially robust firms are more proactive in adopting SO2 abatement technologies, an effect that becomes more pronounced in the context of credit-constrained firms. Our findings offer a nuanced understanding of how internal financial resources can serve as a dual lever for both innovation and sustainability, particularly in settings where external financing is limited

Suggested Citation

  • Thomas Pernet & Mathilde Maurel & Zhao Ruili, 2023. "Internal finance, financial constraint and pollution emissions: evidence from China," Documents de travail du Centre d'Economie de la Sorbonne 23015, Université Panthéon-Sorbonne (Paris 1), Centre d'Economie de la Sorbonne.
    • Handle: RePEc:mse:cesdoc:23015
    as

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    File URL: http://mse.univ-paris1.fr/pub/mse/CES2023/23015.pdf
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    File URL: https://shs.hal.science/halshs-04318505
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    References listed on IDEAS

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    More about this item

    Keywords

    China; Pollution emissions; Financial constraints; Internal financing; TFP;
    All these keywords.

    JEL classification:

    • G2 - Financial Economics - - Financial Institutions and Services
    • G32 - Financial Economics - - Corporate Finance and Governance - - - Financing Policy; Financial Risk and Risk Management; Capital and Ownership Structure; Value of Firms; Goodwill
    • L25 - Industrial Organization - - Firm Objectives, Organization, and Behavior - - - Firm Performance
    • L6 - Industrial Organization - - Industry Studies: Manufacturing
    • Q53 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Environmental Economics - - - Air Pollution; Water Pollution; Noise; Hazardous Waste; Solid Waste; Recycling

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