Green finance and green transition by enterprises: An exploration of market-oriented governance mechanisms

Using the implementation of the “Guidelines for Establishing the Green Financial System” (GEGFS) released in China in 2016 as a natural experiment, we adopt the difference-in-differences (DID) method to explore the influence of a green finance (GF) policy on the green transition of enterprises (GTE) from the perspective of its market-oriented governance mechanism. We obtain three findings from our empirical results. First, GF can significantly drive GTE through providing market-oriented governance. Second, the market-oriented governance by GF drives GTE via two channels: green oversight and green governance. Third, the promotional effect of GF is greater in areas with strong environmental governance by the state, at firms with less public environmental oversight, and at firms that actively disclose green information. Our results not only enrich the relevant literature on GF and GTE but shed light on how and the extent to which GF can help to achieve a green transition in the economy through the use of market-oriented governance.