How does green credit policy affect innovation efficiency of heavily polluting firms? Evidence from a quasi-natural experiment in China

This study uses a difference-in-difference (DID) model to examine how the green credit policy (GCP), which was established by China in 2012, affects the innovation efficiency of heavily polluting firms (HPFs). We conclude that the innovation efficiency of HPFs is significantly reduced under the shock of the guidelines. The reduction in innovation efficiency can be attributed to the higher risk of innovation disruption that results from higher degrees of financing constraints. In other words, the GCP has a resource allocation effect, limiting the flow of funds to HPFs. However, it does not play a Porter effect to force HPFs to innovate but has a penalty effect to reduce the efficiency of innovation by HPFs. Furthermore, our findings show that the penalty effect is more pronounced in HPFs in the central and western regions or HPFs with state ownership. Additionally, the role of GCP in decreasing the innovation efficiency of HPFs has increased with the strengthening of regional environmental regulation. Our article not only contributes to the growing understanding of the economic effects of GCP but also offers relevant guidance for the construction of green financial systems.