Green credit guidelines and corporate financialization: Evidence from heavily polluting enterprises in China

This study examines the impact of China's "Green Credit Guidelines" (GCGs), which restrict loans to heavily polluting enterprises, on their financialization strategies and the resulting economic consequences. Using a difference-in-differences approach with A-share listed firm data from 2007 to 2021, we find that GCGs significantly reduce speculative financial assets (i.e., speculative financialization) while increasing liquid financial assets (i.e., precautionary financialization). Following the implementation of GCGs, the reallocation of financial assets is primarily driven by heightened financing constraints and reduced agency costs. Our findings indicate that precautionary financialization enhances green innovation and total factor productivity, whereas speculative financialization has a detrimental impact on these outcomes. This illustrates the contrasting effects of different financialization strategies on firm performance and sustainability. Heterogeneity tests reveal that nonstate-owned enterprises and firms in regions with less developed financial systems or stricter environmental regulations are more responsive to GCGs. These findings contribute to the literature on green finance policies by demonstrating how such policies shape corporate financialization to support sustainable development and the green transition.