Impact of green finance on total factor productivity of heavily polluting enterprises: Evidence from green finance reform and innovation pilot zone

Green finance is attracting a substantial amount of attention as an essential way to achieve green development. Through a sample of Chinese non-financial A-share listed companies from 2012 to 2020, we use the implementation of the green finance reform and innovation (GFRI) pilot zone policy that was introduced by the Chinese government in 2017 as a quasi-natural experiment and constructs a difference-in-differences-in-differences (DDD) model. The empirical evidence shows that the implementation of green finance reduces the total factor productivity (TFP) of heavily polluting enterprises in pilot zones. Our mechanism analysis shows that the GFRI pilot policy affects the TFP of enterprises through financing constraints and environmental protection investment rather than technological innovation. The heterogeneity analysis finds that the inhibitory effect of the GFRI pilot policy is more prominent in private enterprises, large enterprises, capital intensive enterprises, and small environmental responsibility enterprises. Further, the mechanism heterogeneity of the financing constraints analyses show that the GFRI pilot policy exerts greater levels of pressure on the financing constraints of private enterprises, large enterprises, and small environmental responsibility enterprises. The mechanism heterogeneity of the environmental investment analyses show that the GFRI pilot policy encourages environmental investment in private enterprises, small and medium enterprises, and small environmental responsibility enterprises. Our study provides evidence to support the expansion and promotion of GFRI and useful guidance on ways to implement green transformation in enterprises.