Actions speak louder than words: Environmental law enforcement externalities and access to bank loans

By exploiting the staggered city-level establishment of specialized environmental courts in China as exogenous shocks and using a difference-in-differences research design, we find that an increase in the efficiency of environmental enforcement leads to a decrease in companies' access to bank loans. The channel tests show that these same shocks lead to an increase in environmental litigation, op-erational and reputational risk. The cross-sectional analyses also reveal consistent evidence. Collec-tively, our findings suggest that the environmental mandate has important externalities for bank lend-ing decisions, indicating that the costs of environmental enforcement go beyond reducing environmental pollution. (c) 2023 Elsevier B.V. All rights reserved.