Can green credit policy stimulate firms' green investments?

Green credit policy, a market-oriented green financial tool, aims to achieve simultaneous economic development and environmental protection. Utilizing china's 2012 green credit policy as a quasi-natural experiment, this paper employs a difference-in-differences method to explore its causal impact on Chinese firms' green investment behavior. The empirical results indicate that the green credit policy significantly stimulates the green investments of firms in pollutionintensive sectors compared to those in non-pollution-intensive sectors. This finding remains robust across various tests, including parallel trends, dynamic effects, confounding factors, and alternative methods. Furthermore, the green investment-induced effect is reinforced by the supplementary green credit policy introduced in 2018. The heterogeneity effect reveals that the green credit policy facilitates the green investments of firms with undisclosed environmental information. Additionally, the study finds that the green investment-induced effects are more pronounced among firms with soft financial constraints, limited access to government subsidies, state-owned firms, and larger sizes. These findings shed light on the crucial role of green finance policy in promoting green recovery, suggesting that the government should increase the provision of green credit in terms of quantity and scope.